Leading Strategic Change The Vw Turnaround Management Essay
During the 1990s, the Volkswagen Group (VW) which was composed by the Audi, Seat and Skoda brands went through a rough patch. It faced a lot of problems such as high costs, a weak model line up, a decline of 85% in profits and costly differentiations between the group’s brands. More specifically, in 1992, VW was in a bad place due to the profits’ fall, the negative return on sales, the huge sums for fixed costs and the messy accounting system. The following year, the challenges for VW consisted of complains by the customers for high prices, the main plant in Wolfsburg only made profit when the workers were on overtime and the Japanese competitors were becoming a threat by using UK plants to produce similar models at a less expensive price. Moreover, about 30,000 employees were no longer necessary but VW could not fire them because they lived in undeveloped areas, there were high costs as Audi and VW produced a similar engine but no mixing in production was occurring and in the US, the sales from 600,000 units in 1970 went to 50,000 units. Finally, in the Asian market, not including China, VW obtained less than 2% of the market share. In addition, the auto industry was going through its worst recession during the last 30 years.
In 1993 Ferdinand Piëch took over Dr. Carl Hahn and became Chairman of the Board of Management of the company. From that point on, through his aggressive strategy for entering new markets, consist VW a globalized organization, in-organization changes, modification in the production lines and communication with the employees, managed to transform VW into the first automobile company in its industry.
According to Beinhocker (2006) there are two elements which sustain a long term success. The execution of activities and the adaptability of those challenges so as to survive in the future. In his article, The Adaptable Corporation, he states literature where the action of execution is against adapting, meaning that very few organizations manage to achieve both. Beinhocker also mentions research which concludes that short-term achievers are successful but lose their way when there is change in the environment. Piech managed to bring change into VW and adapt it within the organization culture without shifting apart. Changes in markets and technologies, depressions, wars, globalization are barriers which VW overcame and made it to the long run. What is important to note from Beinhocker is the process for change. The author states that most turnarounds are easier and faster achieved when there is a change in management instead of a change in the business model. In the case of VW, not only there was a new CEO but there were changes in the strategy. For instance, Piëch focused on internationally expanding the company and tried to differentiate the brands of the group without increasing the costs.
However, in order to comprehend the successful run of VW, it is important to understand Piëch’s leadership style. Ferdinand Piëch is an Austrian engineer, born in 1937 and the grandson of Ferdinand Porsche, the creator of the Volkswagen Beetle, the Mercedes-Benz SS/SSK and the Porsche brand. In 1975 he acquired his first job as a manager at Audi. In 1993 he was called to VW and by 2002, when his retirement was planned, transformed it into the first automobile company worldwide, adding brands like Bugatti, Lamborghini and Bentley. It was his belief that the reason VW was going through a crisis in the early 1990s was the lack of preparation and homework by the people working in the company.
Piëch’s leadership style has characteristics that consist him a high task oriented person because of his clear vision, his passion, his knowledge and the guidelines he set for his employees. However, he can be attributed the style of a task master as he leaded through fear. He had the respect of his colleagues but on the other hand he was described as a brutal person who wanted to be informed of the smallest detail and that is why he was called freak control. He liked to visit his employees at their working place and pressure them. However, he did not give direct orders and his managers should for example, change the task of 100 people immediately if they suspected Piëch wanted to do something in a different way. Piëch was never afraid to blame someone for their mistakes. For instance, a problem occurred in Mexico with Golf’s launch, not passing certain requirements. He stated that the workers were not to blame but the managers.
Ferdinand Piëch is a transformational leader. Through the actions he took in VW he has showed that he is able to pass his vision to the individuals around him and create extraordinary performance which will eventually lead to success. He would spend most of his time in the plants talking to employees, pressuring them. He never remained non-committal and his employees thought of him as tough but at the same time very reliable. He had the ability of making people trust him and could motivate them. For instance, he gave the opportunity to his employees to form unions and chose to rearrange the working schedule instead of firing the excess staff. He had charisma as he loved what he did and used the German traditional automobile industry strengths to bring innovation. He understood the market and its demands and using his new strategy he led VW to a transformation to the top.
Through his ability to turn words into successful resulted actions, Piëch is an authentic leader. When he first took over VW he had self-awareness and market awareness so as to be confident enough to implement his strategy. He followed the steps of his grandfather and combined them with the different time period and the knowledge he had. He could read the environment around him and along with the communication he had with this staff and his colleagues he built a strong organization which succeeds until now.
Piëch succeeded in his work as a CEO in VW by aligning his strategy according to the environment. The automobile industry is a highly competitive industry which in the early 1990s was going through a financial crisis. The technology was changing every day, the costs were high for creating each model and the consumers were not happy. Piëch introduced a new platform manufacturing system which allowed VW to produce same parts for different car brands and most importantly, lower costs. He is also known for his aggressive moves into other markets. In order to sustain a competitive advantage, Piëch continued updating the product line and achieved a respectable market share around the world. As Piëch’s leadership style was affected by his childhood and the WWII, he grew up to believe that alliances were a guaranteed strategy for anything you do. Therefore, he acquired other companies such as the Bentley, Lamborghini and Bugatti. The core competencies of VW after the transformation by Piëch were the restructuring of the company, its efficiency, the product line, the platform system and its globalization. A key competence in the success run of VW is its employees. As mentioned before, VW estimated of having 30,000 employees who were not needed. Therefore, VW adopted a four day schedule per week and reduced wages by 16% while supporting the unions. VW became an innovator as the labour relations are concerned and aided in reducing unemployment rates. Furthermore, Piëch reduced the number of the board members from nine to five and reduced their salaried by 20%.
According to the Level 5 Leadership framework by Collins (2005) Piëch is a level 4 effective leader. He had passion for what he was working for, he had clear goals and a vision and was able to motivate the individuals around him and lead VW to success. Through the characteristics of his environment one can conclude that even though he has no humility (he had a patriarch, egoistic style), he was committed and very confident for the future. The action logic Piëch follows, according to Rooke & Torbert (2005) is a combination of the achiever and the strategist. Piëch when he started, had a vision for VW and had the capabilities to implement his goals. He was well aware of the market and at the same time he managed to transform the organization into an international, successful company.
Piëch’s personality is definitely a driving force for his actions and results. He once said: “It was always my goal to lead a bigger company than my grand-father”. He was described as a very passionate man who through the cars’ design and the patriarchal protective approaches he was using to his workforce, wanted to keep his grandfather’s memory and style alive. Piëch loved technology and cars and had a deep understanding of the customers. However, his fellow executives saw him as an egoist who considered himself the patriarch of VW. It is no surprise, that his personal life is as controversial as his professional one. He is the father of 12 children, who he has limited relationships with, by four different women and was also accused of an affair with his cousin’s wife. The reality was that in 1992, he was the best candidate for leading VW out of the crisis. He had knowledge of the auto industry, especially the German motor industry with its strengths, disputes and weaknesses.
According to Aiken & Keller (2006), a leader transforming an organization must have and illustrate a meaning for his actions, inspire people, build loyal and strong teams and be ready for any collision. As a result, a successful turnaround will occur like Piëch did with VW. Even though Piëch was described by the press, his family and his co-workers as a CEO who led by fear, he was always ready for the future and had the brilliance of steering this delicate network. Ferdinand Piëch is not only a successful CEO but he is a leader who managed to turnaround VW and position it at the top of the automobile industry worldwide. In the years between 1993 and 2001 sales reached â‚¬88.5 billion from â‚¬39.1 billion and an increase of 17% of the international sales occured. It was no surprise when in 1999 he was awarded the prize of “Car Executive of the Century”. In 2002 he retired from VW but still remains on the board of directors and today, in his 70s, he supervises the extraordinary legacy he left behind.
VW’s CEO in the US today is Stefan Jacoby. His strategy is focused around 5 foundations. Local production, the organization, the dealer network, the products and the brand. Jacoby is concentrating on most of the values Piëch introduced in 1993 when he first took over VW. However, Piëch was following the patriarchal values and style of his grandfather. It is important to adjust the strategic model according to the environment’s trends. It is a challenge of taking over a successful organizations and trying to keep it at the top with a different leader. To conclude with, it is necessary for VW to grasp on the fundamental values that Piëch used to make it successful and at the same time be ready to implement radical changes in case of a crisis.