Introduction
Almost every recent book about business ethics has mentioned the story of the Volkswagen emission scandal as a real ethics violation case to study. The magnitude of this case was not only hurt the brand but the overall operation of the company. The company had to pay more than €20 billion as a penalty for the scandal, and they also had to take an exhaustive legal process (Ewing, 2020). After the scandal, the consumers’ willingness to buy VW decreased by 28% (Trump & Newman, 2016). Since then, many researchers tried to analyze the case and provide recommendations for the company to recover and rebound from its situation. This article will analyze the Volkswagen’s strategy 2025 study and recommendations by Magadia et al. (2019).
Volkswagen’s Previous Strategy
Volkswagen’s previous strategy was heavily focused to be the most successful and fascinating in the industry while keeping sustainability on the horizon to achieve. This strategy was described by the key elements, which consist of innovation, market share gain, productivity improvement, and a first-class team (Magadia et al., 2019). In this case, the company measures its success mainly using economic indicators. While this strategy can be a good basis to move forward and thrive in the market, the company was unable to actualize it in a rightful manner.
The Strategy’s failure
The strategy was converted to the workplace as heavy demands. These demands may put the employees on burdensome tasks. When the company demanded the engineers to create an innovation by designing a new diesel engine that is much cleaner without dropping the performance level of the engine, the engineers saw it as a burden that they could not refuse. However, they really did struggle to accomplish this challenge with a tight budget and time constraints. The heavy pressure forced them to take an unethical path, which was to create software that could recognize emission test situations, so it can put the car into controlled safe emission every time the car is being put to test (Lawrence & Weber, 2020).
Moreover, Mees (2020) stated an analysis of the scandal, saying that the management had only considered sustainability as an input to the decision-making process, not an ethical issue. Vega (2017) mentioned a complaint saying that within the company, there was a culture of giving incentives to cheating, as well as denying accountability, and it was unchecked as it came from the very top management. The company failed in implementing fundamental business ethics in its operation, hence when the scandal became public, the company had to face severe consequences. Aside from the weak ethical culture in the organization, the stressful work situation also contributed to the failure of the strategy.
Volkswagen’s Strategy 2025 Analysis Review
In their article, Magadia et al. (2019) proposed 4 recommendations to execute Strategy 2025: (1) change in work culture, (2) improve brand image, (3) improve quality and productivity, and (4) develop joint venture for battery technology. I agreed with the first two strategies since the first is the root cause and the second is what hurt the most. The third is what every company wants to achieve. However, in the case of recovering from the scandal, having too many foci can slow down the recovery process.
In the case of recovery, it is best to focus the resources to deal with the consequences, such as financial and brand consequences, and to deal with the root cause, which is the work culture. The urgency of these factors has to be addressed immediately, before taking the focus to manufacturing issues. The financial consequences of paying a huge amount of money can hurt the company’s cash flow. The new CEO’s strategy to reduce the number of models and cut down the annual spending is an appropriate strategy.
Fleming (2019) stated that Volkswagen’s Brand Index score is damaged significantly, from 25.3 before the scandal, down to -1.6 after the scandal. The index score involved various metrics, such as perceived quality, value, and reputation). Customers’ trust declined fastly as they thought the company just did a greenwashing practice, a false deceptive claim that the product is environmentally friendly (Becker, 2019).
This issue needs to be addressed immediately if the company wanted to embody its 2025 strategy to become a world-leading provider of sustainable mobility (Magadia et al., 2019). They need to regain customers’ trust fast by adopting honest and sincere ways in advertisement and public relations issues, while keep highlighting the strength of the products.
The second issue that needs to be fixed directly is the work culture. Weak ethical cultures can foster ongoing bad behavior (Lawrence & Weber, 2020). Lack of transparency and open communication is the main cause of the scandal. Leaders of the organization were in great question after the scandal. Hanno and Akinsaya (2019) stated that Volkswagen’s Strategy 2025 outlines a culture that emphasizes mutual trust, equality, and open-mindedness.
When the company has regained customers’ trust and brand image, fixed the cash flow, and established a healthy work culture, then it can shift its main focus to its vision. However, in the case of recovery, those are the most essential factors to be dealt with quickly.
Conclusion
Volkswagen’s Strategy 2025 is clear enough as a vision. However, the company needs to address the most fundamental factors that were severely damaged by the scandal, as well as the root cause of the scandal, before they can build up to the overall mission. The company seemed to agree with the notion. Welch (2019) found that the company’s first action in the 2025 Strategy was to rebound from the scandal issues using four strategic elements, encapsulated in the 4R: Replace (the leadership), Restructure (the organization), Redevelop (the strategy) and Rebrand.
Despite the scandal, Volkswagen’s sales were strong. It is still the world’s second-biggest automobile manufacturer with a 7.38% market share (Fleming, 2019). Knowing this, the 2025 Strategy is very achievable. With the market share regained, and the company culture well-restructured, the company can set its main focus on its vision and carry through every challenge ahead.
References Becker, C. U. (2018). Business Ethics: Methods and Application (1st ed.). Routledge. Ewing, J. (2020, May 20). Volkswagen Settles Emissions Charges Against 2 Managers. The New York Times. https://www.nytimes.com/2020/05/20/business/volkswagen-emissions-charges.html Fleming, M. (2019, September 10). VW overhauls its brand for a ‘new era’ as it attempts to put emissions scandal behind it. MarketingWeek. https://www.marketingweek.com/volkswagen-brand-redesign/ Lawrence, A., & Weber, J. (2020). Business and Society: Stakeholders, Ethics, Public Policy (16th ed.). McGraw-Hill Education. Magadia, R., Hanno, M., Kadoo, A., Akinsaya, D., & Carlson, A. (2019). A Real-Time Case Analysis. https://www.researchgate.net/publication/330324062_A_Real-Time_Case_Analysis Mees, B. (2020). The Rise of Business Ethics. Routledge. Trump, R. K., & Newman, K. P. (2016). When do unethical brand perceptions spill over to competitors? Marketing Letters, 28(2), 219–230. https://doi.org/10.1007/s11002-016-9409-y Vega, G. (2017). Volkswagen. Business and Professional Ethics Journal, 36(3), 285–296. https://doi.org/10.5840/bpej20179661 Welch, J. (2019), The Volkswagen recovery: leaving scandal in the dust. Journal of Business Strategy, 40(2), pp. 3-13. https://doi.org/10.1108/JBS-04-2018-0068
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