Course - Diploma In Strategic Management And Leadership


Volkswagen Group, also referred to as Volkswagen AG, is one of the leading global automotive manufacturing brands and the largest automobile manufacturer in Europe, whose brand reputation is ubiquitous in the entire automotive industry as well as among the worldwide automotive enthusiast community. Volkswagen was established in 1937 and is currently headquartered in Wolfsburg, Germany. In its earliest stages, the business goal of the Volkswagen Group was oriented towards the manufacture and sale of private passenger vehicles that were affordable yet reliable and durable, thus facilitating the private ownership of passenger vehicles among the growing middle class at that time. The Volkswagen Group started expanding rapidly around the middle of the last century and penetrated the lucrative American market in 1955. Presently, the operational sector of the Volkswagen Group is distributed among four areas. These areas include Passenger cars, Commercial vehicles, Power Engineering and Financial Services. The Volkswagen Group delivered 10.7 million vehicles to its global customer base in 2017 and 10.8 million vehicles in 2018. This was reflected in the global market share of the Volkswagen Group, which rose to 12.8 per cent. Between the years 2017 to 2018, the sales revenue of the Volkswagen Group increased from 230 billion Euros to 236 billion Euros, while the earnings after tax rose from 11.5 million Euros to 12.2 million Euros.

Unit - Strategic Management


  • 1. Introduction
  • 2. Strategic Business Issues
  • Strategic Issue
  • Strategic Issue
  • Overview of decisions that led to the current position
  • 3. Critical Analysis
  • Strategic Implications
  • Impact of strategic Issues on Competitive Performance
  • 4. Conclusion
  • 5. Recommendations
  • References

Strategic Business Issues

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Strategic Issue 1 - Emissions Scandal of 2015

In spite of its phenomenal levels of success and other landmarks, the brand has suffered from its fair share of difficulties and hurdles. Some of these issues that stem from strategic management decisions or, rather, the sequence of management decisions and the corresponding actions or implementations are discussed in this assignment (Jellinghaus, 2022). The first strategic management issue of the Volkswagen group that has been discussed in this assignment involves the emissions scandal of 2015. This scandal and its consequent legalities continued for multiple years. In 2015, the Environmental Protection Agency (EPA) of America announced its findings according to which the Volkswagen Group had purposely cheated several emission regulation standards by intentionally placing a software bug in the Electronic Control Unit (ECU) of its vehicles due to which these cars met the levels of the various constituent toxic chemicals and other pollutants in the emission from these vehicles fell within regulatory standards during the testing phase but exceeded the same regulatory standards during their daily or routine use by the customers (Boiral et al., 2022). Thus, the scandal basically states that Volkswagen vehicles have been cheating the emission tests and standards by making their vehicles appear far less polluting than the real-life scenario.

As per the report by the Environmental Protection Agency, over four hundred and eighty-two thousand diesel vehicles under the Volkswagen brand that was operational on American roads were emitting up to forty times more toxic fumes from their vehicle exhausts than the levels that were legally permitted. This meant that the nitrogen oxide emissions, which include nitrogen monoxide as well as nitrogen dioxide emissions, exceeded forty times their recommended levels in the atmosphere. This amounted to anywhere between a quarter to a full tonne of nitrogen oxides through vehicle emissions every year. This amount of excess nitrogen oxide gases that were released annually from the exhausts of Volkswagen vehicles exceeded the total amount of nitrogen oxide gases released annually from all of the industrial activities of the United Kingdom, which include all public and private vehicles and power station emissions as well as emissions from factories and agricultural practices (Klein, 2022). The device in question behind this entire scandal does not refer to a physical device but to a software programme in the electronic control or command unit of the Volkswagen vehicles.

This programme or the electronic control unit acts as a central processing unit for overseeing all minute details of the functioning of the vehicle, including controlling the valve timings of the combustion chambers, the ratio of the fuel-air mixture, and also operational sequences, including shifting of gears and application of brakes as well as managing the various systems and their redundancies involved with the running of the vehicle (Mezinova et al., 2022). Due to the faulty software programme, the vehicle computer was able to detect if the vehicle was being driven under test conditions, and if so, only then would it implement the pollution prevention measures. The test conditions involved putting the concerned vehicle on rollers for a certain time and running it at a specified speed, after which the vehicle is put on a separate set of rollers and run at a different speed and so on. The central processing unit or the computer of the car was able to identify these test situations through the various feedback sensors and mechanisms installed in the concerned Volkswagen vehicles. These Volkswagen vehicles temporarily cut down emission levels through a range of techniques, including adjusting the composition of air-fuel mixtures and controlling the exhaust flows and, in some cases, through the injection of a urea-based chemical into its exhaust flow during testing (Mezinova et al., 2022). Afterwards, these measures were dropped by the processing unit in order to achieve better performance figures during the daily use of the vehicles.

In the aftermath of this scandal, millions of Volkswagen vehicles were recalled from across the globe. The Volkswagen Group admitted that this issue had affected around eleven million vehicles worldwide that were manufactured between the years 2009 and 2015 (Stotz et al., 2022). This scandal had very serious repercussions on the Volkswagen Group, including financial losses in the range of tens of billions of dollars and also a huge loss in brand reputation or brand image, as well as loss of customer loyalty and customer goodwill.

Strategic Issue 2

A shift of the transport industry away from individual ownership of cars:

The original operational philosophy of the Volkswagen Group, when it was established in the wake of the Second World War, was to provide affordable as well as reliable and durable passenger vehicles which would enable the rapidly expanding middle or working-class populations of Europe at that time to achieve or attain the goal of private automobile ownership (Park & Chen, 2022). Since then, the brand has expanded to gigantic proportions and evolved to serve a much wider range of customer demands of a consumer base spread across the globe. Although the Volkswagen Group operates in different areas of the automobile industry, including private and commercial vehicles, the majority of its revenues and earnings come from the manufacture and sale of private passenger vehicles.

This itself is a vulnerability as it outlines a lack of diversity in the nature of products of the Volkswagen Group (Kim et al., 2022). This is one of the primary causes that led to another strategic management issue of the Volkswagen group. Contemporary society has witnessed unprecedented growth and development of technological innovations and their subsequent penetration into every aspect of our lives as well as into every hierarchical level of the global population. This has resulted in enhanced connectivity among all individuals as well as organisations across the globe. Consequently, modern society and particularly the younger generations, possess higher levels of awareness and concern regarding all sorts of contemporary issues that affect humanity. One of these issues is environmental degradation and climate change (Hirwa et al., 2022).

Due to this increased awareness about the environmental implications of their decision- making in terms of products and lifestyle choices, the younger generations of society are increasingly opting for environmentally beneficial or at least neutral choices wherever possible. As a result of this, the newer generations of the global consumer base, particularly in the Western or developed countries, are opting for more eco-friendly modes of transport instead of individual vehicle ownership. The preferred modes of transport of this increasingly environmentally aware consumer base include public transport or carpooling and electric vehicles, as well as other alternate modes of transport, including cycling, among others (Valentinov & Chia, 2022). However, another emerging industry that has vastly added to this issue is the rise of online cab delegation services like Uber and Lyft (Frieske & Stieler, 2022).

These services implement the advent of modern technology into the daily lifestyle of consumers and provide innovative solutions to them. These cab delegation services provide a host of advantages to their customers.

These advantages include the ability to avail the same levels of comfort and safety, and convenience in transport as is expected while travelling in private vehicles, but on a much smaller financial budget as well as with a much-reduced carbon footprint. In other words, online cab delegation services like Uber allow customers to avail the benefits of travelling in the comfort of private passenger vehicles while bypassing the hassles associated with the actual private ownership of passenger vehicles (Bu et al., 2022). The hassles that can be avoided by choosing to travel by these online cab services include legal responsibilities like the repeated renewal of certificates from corresponding regulatory agencies as well as the financial burden of paying the taxes associated with vehicle ownership.

Overview of decisions that led to the current position

The above-discussed strategic management issues, including the emissions scandal of 2015 as well as the shift of the potential customer base of the Volkswagen Group away from private vehicle ownership towards eco-friendlier and more communal or shared modes of transport, stem from long sequences of strategic decision-making and business approaches that originated in the topmost layers of the organisational leadership or management (Schoenmaker & Schramade, 2022).

Those employees who are unable to meet these aggressively set targets suffer from work penalties and the imposition of other punishments like barring promotions and hikes. This style of management is also referred to as the top-down approach to management. In the present business landscape, the implementation of the top-down approach to management is reflected in the practice where the business executives undertake bold business decisions and formulate business strategies and respective timelines for execution which are then enforced on the lower-level employees of the organisation (Mélypataki, 2022). Although these strategies are initially framed as guidelines during their announcement or circulation, in reality, they are heavily enforced upon the rest of the organisation. Although the top-down approach to management has certain positive attributes like ensuring organisational stability and distinct or pronounced definition of roles and responsibilities, the rigidity and old-fashioned nature of this approach often leads to disparate approaches to progress from different parts of the organisation as well as with lack of general consensus and awareness regarding the policies and guidelines that are adopted across the organisation.

In the years preceding the emissions scandal, the management of the Volkswagen Group had pushed its engineering divisions to refine and improve its diesel engine vehicles to achieve better sales figures and market share in the European market. This is due to the fact that diesel-engine-driven automobiles are more prevalent in European nations and also that the emission standards and regulations of Europe are comparatively more lenient or forgiving (Dahms et al., 2022). This caused the Volkswagen Group to read a whole range of diesel vehicles for the American market just before 2007 when the Environmental Protection Agency (EPA) had enforced a new set of strict rules and regulations regarding the emission levels from diesel vehicles. At that time, none of the vehicles offered by Volkswagen was technically equipped to meet these standards. Thus, the engineers, faced with increasing pressure from upper management to meet sales figures, chose to take a shortcut. They took a piece of technology used in off-road and emergency vehicles to temporarily boost vehicle performance.

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Critical Analysis

Strategic Implications

Strategic Implication of Issue 1

The 2015 emission scandal of Volkswagen AG is one such issue which severely affected the integrity and brand image of the company. The company not only paid a heavy penalty but

also had to compensate with the company's vision. Volkswagen's strategic data suggested that it would have become the leading brand in the automobile industry by 2018, but this scandal postponed that dream (Jong & van der Linde, 2022). Moreover, the hazardous emissions cars of Volkswagen created concern among the people regarding the health and environmental impacts. All of these created several implications which seriously affected the strategic management of the company.

Firstly, the brand image of Volkswagen in the international market was affected.
Reports have shown that defective cars have emitted almost forty times more the number of pollutants into the atmosphere. Also, it was stated that the uncontrolled emission by those cars has led to several illnesses like heart disease, bronchitis and even premature deaths (Yu & Ahbab, 2019). Moreover, the foul emission by these cars has resulted in an allocation of 840 million dollars of health costs by the government. All these reports established Volkswagen deceived their company's vision which said that they would manufacture vehicles which would be safe and environmentally friendly. Secondly, the news of the scandal resulted in a steep fall in their share prices. The media release of the emission scam, along with the data, triggered the investors to sell off the shares of the company. This resulted in a drop of 50 per cent in their price, which resulted in a huge portion of their market capital being wiped out. This market reaction also impacted the brand value and created panic among the investors for losing their capital; as a result, the company, even after taking necessary steps to resolve the issues, faced difficulty in regaining its original position in the market.

The International Council on Clean Transportation was the first to suspect that Volkswagen was using deceptive devices in their diesel cars and manipulating the emission levels (DURA, 2019). This resulted in a drop in Volkswagen's sales. Diesel cars were responsible for 20 per cent of the total sales of the company, and the report of the emission scandal almost put a stop to their diesel cars. This created an impact on the dealers of Volkswagen. They had to suffer severely from decreased sales and low profits. Volkswagen provided funds to those dealers in order to compensate for their losses. Also, they had to provide the necessary cash to maintain their stores and their employees (Hassan, 2019). Apart from these, the company also had to pay heavy penalties to the government for such incidents. Moreover, the employees, especially the sales and marketing sector of the company, felt the risk of being unemployed due to the losses faced by the company. During that time, there was a cut in the bonuses of all the managers of the company, which created a feeling of dissatisfaction among the workforce.

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Strategic Implication of Issue 2

The market trend of the automobile industry has taken a shift. In the case of mid- income families, affording a car is like once in a lifetime. The huge cost of the car in the initial period, followed by regular maintenance throughout the life cycle, often feels like a hassle to most car owners. For this reason, customers have started preferring public transport like buses, trains and also cab services like Uber (Aguilera-García et al., 2022). This shift in the market trend has resulted in some serious strategic impacts on Volkswagen, which counts as one of the biggest threats that can be posed to an automotive company.

The first impact is that the customers are no longer interested in the car's features since they are driven by the cost factor. They are focussing on the comparison between the cost of a personal car with that of public transport or cab services (Kim et al., 2021). As a result, in most cases, using public transport or services like Uber comes out to be much more economical. This is resulting in losing a volume of customers. Also, the trend of cab service provides another threat. Customers, while using the cab services, are able to get the riding experience of various cars of different companies, which often acts as a driving factor among the customers to buy a vehicle of that company. This, in turn, affects Volkswagen resulting in the domination by the competitors. Along with these, the growing number of cabs in the market is helping in the ease of transport which is allowing the customers to be oriented with these services rather than buying a personal car.

Another crucial factor which is impacting the market for Volkswagen is the sustainability issue. The world is moving towards sustainable means of lifestyle in every aspect (Bibri, 2019). This results in the customers opting for sustainable means of transport like using bicycles and public transport like buses and trains. This trend has shown a drop in the sales of Volkswagen, which in turn is reducing its profitability. As a result, the company steps back in bringing innovations to their car models and focussing on bringing a change in their model to survive in

the business. Volkswagen is the manufacturer of diesel vehicles which results in 20 per cent of their sales (Eddy, Pfeiffer & van de Staaij, 2019). This potential shift towards cab services and public transport has compelled the company to make a change in its business model (Hoeft, 2021). Firstly they need to focus their business towards providing cars at a low price in order to retain the market. This impacts the company as they have to implement strategies in order to reduce the making cost of their cars. This will, in turn, affect the supply chain of the company due to the entry of new suppliers into their business. Also, they have to introduce new ideas in their marketing strategies which will motivate the customers to opt for the cars made by Volkswagen in order to achieve their financial and sustainability goals towards transport.

Impact of strategic Issues on Competitive Performance
Porter's five forces provide a clear view of the strategic impacts with respect to competitive performance. This model explains the five factors which act as a measure of the competitiveness of a company in the market (Isabelle et al., 2020). The first force under this model is competition in the same industry. Volkswagen has faced a major issue regarding the emission scandal, which has resulted in the decline of its sales and portrayed a negative brand value. Toyota is a potential competitor of Volkswagen in the industry. The 2015 scandal of Volkswagen has provided a competitive advantage to Toyota since they have a much cleaner image, and as the customers started to avoid the cars of Volkswagen, Toyota was able to capture those customers (Barth et al., 2022). Also, in the case of the market shift, Toyota is known for providing cars at a much more affordable price than Volkswagen; as a result, Toyota stands in a better position than in holding its market. The second force Porter states about the entry of new competitors into the market. The diesel emission scam of Volkswagen has potentially damaged the brand value and the sales of the company (Mews, 2021). This allows new companies to make their entry into the market. On the other hand, Toyota has created its hierarchy and brand identity in the market, which gives the company a strong ground to continue with the same profitability without facing much competition from new entrants.

One of the most crucial forces is the power of suppliers. Volkswagen faces a threat due to the shift in the market trend, which has compelled the organisation to reduce the cost of their goods in order to build more affordable cars. As a result, the company has to negotiate with their existing suppliers and, at the same time, make tie-ups with some new suppliers, which brings in the threat from the power of the suppliers. Toyota, on the other side, does build affordable cars; as a result, they don't require the need to change their supply chain model (Baar, 2020). The next stage of porter's model describes the power of the customers. The diesel emission scandal has created a concern among customers, and their claim for environmentally friendly car models impacts the company allowing it to change the business model. Toyota has a safe ground in this perspective since the company is not involved in such issues.

The final force which brings the threat to Volkswagen is the competition from substitute products. Toyota, in this case, becomes the biggest competitor. This company is chosen since this is the second largest automobile company with respect to revenue after Volkswagen (Gradinaru, Toma & Zainea, 2020). Also, this company is not involved in any kind of scandal like Volkswagen. Toyota also has business tie-ups with various cab companies, which keeps this company secure in this market shift. Along with these, Toyota's automobiles are much more economical than that of Volkswagen. All of these factors clearly establish the competitive drawbacks of Volkswagen with respect to the strategic issues in the international market.

Volkswagen is one of the leading global automobile companies. In this study, the overview of the Volkswagen company is provided along with the two crucial issues which have a strategic impact on the company. Firstly, Volkswagen was involved in the diesel emission scandal in 2015. This is the scam where the cars of Volkswagen were proven to be emitting a high amount of nitrogen oxide into the environment. This has resulted in a lot of premature deaths and cardiovascular illness among a lot of individuals. This has seriously impacted the brand image of the company; as a result, the company has seen a decline in their sales and a plunge in the share price. Another threat to the company is the change in the market trend. It was thoroughly discussed how customers are leaning towards affordable modes of transport like buses, trains and cabs. They are trying to be free from the hassle of a car which includes the high cost of buying and regular maintenance. This created a strategic impact on the company reducing its profitability of the company.

The position of the company with respect to its competitors regarding these strategic issues has been established in this assignment. A comparison Toyota has been taken as an example. Toyota is also one of the largest global companies in the automobile industry. This company has a competitive advantage over Volkswagen. The company is not involved in any kind of scams and, at the same time, is known for manufacturing affordable cars for its customers. All of these factors appropriately established the strategic issues faced by Volkswagen while doing business in the international automobile market.

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In the aftermath of the emissions scandal of 2015, as well as during the contemporary market trend, which has witnessed a potential shift away from private vehicle ownership towards communal or shared transport methods that are facilitated by online cab delegation applications like Uber and Lyft as well as other eco-friendly methods of transport like electric vehicles and cycling as well as public transport like buses and trains, several critical changes or modifications in the strategic management of the Volkswagen Group were essential for preventing the extent of damages incurred by the brand in terms of financial losses as well as loss of brand reputation as well as loss of customer loyalty and customer goodwill (Zhang & Li, 2022).

One of the recommended mitigation strategies or techniques involves increasing the allocation of resources to the development and refinement of electric and hybrid technologies as primary driving technologies for the newer range of vehicles from the Volkswagen Group.

This would also help the brand in the other aspect of diversification of its products and services. Modern society is heavily influenced by emerging technology as well as by enhanced information-sharing platforms and improved connectivity (McDevitt, 2022). This has led to unprecedented levels of awareness among the current global population and particularly the younger generations, regarding environmental degradation and climate change, among others. The shift of the overall focus of the Volkswagen Group from capturing the majority in terms of market share of privately owned diesel vehicles towards focusing on the electric and hybrid vehicle industry would help the Volkswagen Group to make up for the lost reputation due to the emissions scandal as well as capture the goodwill and enthusiasm from the expanding potential consumer segments that comprise the environmentally conscious and relatively younger generations. It would enhance the degree of future-proofing of the Volkswagen Group as the entire automobile market shifts away from conventional internal combustion engines towards electric and hybrid drive technologies (HANI, 2022). This would help to fortify the future prospects of the Volkswagen Group in terms of market share and revenue generation globally.


  • Q: What is Volkswagen Group's current strategy?
  • Q: Why did Volkswagen Group develop this strategy?
  • Q: What are some of the challenges Volkswagen Group faces in implementing this strategy?
  • Q: Where can I learn more about Volkswagen Group's strategy?

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