The Dieselgate Scandal: The Restructuring of Volkswagen Group

The Dieselgate Scandal 

Volkswagen entered the US market with great performance; it is ironical that from the same market, it received a great blow in the Dieselgate scandal of 2015. Volkswagen appeared in the January 1950 issue of Motor Trend magazine, being introduced by Kirschner. The company went on to produce and sell more cars in the 1950s recording a staggering production of 2.5 million cars by 1959; in 20 years since 1939. From then the company performed extremely well in the world market and at one point attained the name “the people’s care” (Gunnell, J. (2017).

Global warming is an international concern. Industries directly responsible for global warming should occupy frontline in the management of the disaster that is threatening nature and humanity. The Dieselgate scandal that affected Volkswagen is an illustration of what would appear to be a mistake as well as an intended act on the part of the company to deceive the international community concerning the safety of their cars (Vlasic, 2017). This may be taken as a shortcut for avoiding expensive technology. The major accusation brought against Volkswagen by the US Environmental Protection Agency (EPA) was that Volkswagen had programmed their diesel engines to bypass the clear air test by activating a clean air emission while under test. In normal circumstances, the vehicles were found to produce great amounts of environmental pollutants while in use (Sumantran, Fine & Gonsalvez, 2017). The scandal affected the performance of the company bringing about the need to restructure and restore the consumer confidence and public image. Thus, the organization needs to come up with a technology that is up to date and produce vehicles that will help to conserve the environment and yet be able to generate profits and satisfy the consumer needs. The scandal has taken from the company more than $20B paid as fines or settlements (Vlasic, 2017). It can only do this if it realizes that it is in a crisis, the magnitude of the crisis and proper communication channels to be used in the crisis management (Frandsen & Johans, 2016).

Turnaround Strategy 

A turnaround strategy is a concerted effort to bring back business or company back to profitability after a long period of loss ( Thompson, 2018) . The diesel gate scandal affected negatively on Volkswagen affecting its sales. The turnaround strategy, in this case, is a combination of various strategies such as concentrated growth, market development, product development, innovation strategy, horizontal and vertical integrations, and concentric and conglomerate diversification. Thus, as opposed to applying a single strategy, the restructuring strategy will rely on a combination of methods to enhance adaptability and increase profitability and market presence.

Concentrated growth 

Concentrated growth can be understood to mean focusing on a single item to meet the needs of the consumer; the production unit becomes specialized on a single product by bringing together all the necessary resources and technology towards perfecting a single product that can boost the performance of the entire firm ( Thompson, 2018) . As noted earlier on, Volkswagen as a whole was divided between its various units on which technology should be used in controlling the emission of nitrogen oxide compounds. The division led to the Dieselgate scandal, which could have been avoided if the firm had focused on a technology that would work best. To avoid a similar end in the future, the firm should bring together its expertise and invest in a technology that will be environmentally friendly. The decision should come from the top leadership and not allowing individual units to decide what will work best for them.

Market Development 

Market development encompasses a broad definition that at its core involves marketing products, which can meet the needs of each market, to new markets through advertising. This may necessitate a cosmetic modification of some of the products to enter new markets successfully ( Thompson, 2018) . Volkswagen has a burden to clear its public image. It is as if the company is beginning from the ground in seeking new market and struggling to retain its old customers. The firm needs a comprehensive marketing strategy that will be able to convince the global market that it has done good work in developing efficient technologies to guarantee compliance with international standards on the regulation of air pollution. More advertising must be done and new technologies produced.

Product Development 

Product development can be understood to mean the development of new products or modification of older products or incorporating the new products into the older products ( Thompson, 2018 ). As noted before, Volkswagen introduced a software application that regulated the turbo injector engine allowing it to pass the test for a moment but fail later on. Sadly, the product development model was carried out with the wrong intention. In case the software could enhance the performance of the turbo engine for a short duration, the company could have programmed it to function fully. In case the technology was expensive to apply the company should introduce another simpler technology incorporation with the turbo injectors, to improve the efficiency of its engines in purifying exhaust fumes.

Innovation 

Product diversification is an essential element of business in scenarios such as the one Volkswagen has found itself in. The company can be innovative and introduce new products into the market to support its life ( Thompson, 2018 ). By introducing new products into the market, the company can win the confidence of the consumers. This strategy can help the company exploit new markets. For example, if a company was producing vehicles as its main product line, it can introduce motorcycles as a new strategy to exploit consumers that are not interested in cars but motorcycles. Volkswagen can apply this strategy to its benefit. The strategy will allow the company to maintain its face in the market long enough to enable it to manage its current issues with the turbo injectors.

Joint Ventures 

A joint venture is a third company established by two companies intended to make a profit on behalf of the two forming companies ( Thompson, 2018) . This is not a viable option for Volkswagen. The company’s public image is tainted and forming a venture that will work to the advantage of the company is challenging. Instead, the counter-party may propose more demands that Volkswagen will be compelled to follow as though it were its only salvation. Instead, the company should only adopt a path of acquisition as discussed hereafter in more details.

Horizontal Acquisition 

The horizontal acquisition is a development strategy whereby a company acquires another company or merges with it to improve its product or service quality ( Thompson, 2018 ). Merging or acquisition can be most effective when the companies are related in the line of product. In case Volkswagen has not yet developed a technology that can help it produce vehicles that emit little to no air pollutants, the company can merge with other companies that have the technology. The strategy may be expensive in the end, but it can take this opportunity to obtain more time for developing better technology. Under such circumstances, the company can sign temporary contracts that will last enough time for a window to develop new technology or improve what it has.

Vertical Integration 

Volkswagen's dilemma can also be solved by the acquisition of the software developer who supplied the second party that trades directly with Volkswagen; this is understood as vertical integration ( Thompson, 2018) . For example, firm A is supplying firm B with raw materials, which it uses to make a product that it will supply to firm C. In this case, firm C is Volkswagen. Instead of obtaining the product from B, C can decide to acquire A and enjoy the benefit of low supply costs. Such an acquisition will help the firm minimize the cost of acquiring the software from the second party and enable it to have full ownership of the software. Volkswagen will be able to produce turbo injectors equipped with the software, and that can operate fulltime as opposed to installing the software in a few sample cars or installing the software to operate in a short time. Equally, by acquiring the software, Volkswagen will be able to determine the software development paths to incorporate the latest updates in the IT sector. The technology will be more efficient.

Concentric diversification 

Similar concepts have been discussed earlier on that relate to the concept of concentric diversification. Concentric diversification is an acquisition platform that a business can exploit through acquiring other firms that are related to it ( Thompson, 2018 ). The benefits of such a move to Volkswagen have been stated earlier on to include an opportunity to reenter the market with a new image, time to modify the turbo injector engines and maintain its position in the market. It has been noted that the firm could capitalize on other products such as motorcycle, boats and so on. These products will provide capital and an opportunity to work out its public image by producing efficient technologies.

Conglomerate Diversification 

Conglomerate diversification is alien to the concepts above. Instead of acquiring business or firms related to its line of operation, a company decides to enter into other ventures ( Thompson, 2018 ). For example, Volkswagen is dealing in automobiles; what is it decided to venture in hotelier? Such a venture may be profitable but how does it help Volkswagen overcome the Dieselgate scandal? Therefore, the venture becomes unnecessary. Such an option can only be advisable in case Volkswagen had no case to solve, no scandal to clear. Otherwise, competitors might view involvement in an opposite line of the venture as escapism and this may end up costing Volkswagen a greater percentage of its market share. Thus, Volkswagen cannot have the luxury of pursuing conglomerate diversification.

Bankruptcy 

Bankruptcy is inevitable for a company that is competing downwards and making huge losses. A distortion of a company's image like the case of Volkswagen can be very harmful to the profitability of a company and even inform some of the shareholders to withdraw their shares ( Thompson, 2018) . Such an event can lead down to a path of bankruptcy, which may eventually see the company close. Bankruptcy will be discussed under two forms: liquidation and reorganization.

Liquidation strategy 

It is important to emphasize at this point that the main purpose of the restructuring strategy is to empower Volkswagen from the Dieselgate scandal. Liquidation strategy involves the reduction of assets especially when a business is closing ( Thompson, 2018) . Liquidation is not an ideal option for the case of Volkswagen. Companies have had legal matters, such as Apple and Nokia solving cases on unethical treatment of their employees, to solve which does not make Volkswagen a strange one. The statement does not lessen the wrong conducted by Volkswagen but as evidence that it can also overcome and remain a strong competitor. Volkswagen should not consider liquidating its assets because it will wind up its operations in a market where it is ranked among the top players. Instead, it should strategize to acquire more assets that will help it develop an environmentally friendly engine.

Reorganization 

In a reorganization, the creditors opt to freeze their claims allowing the organization more time to restructure and rebuild itself more profitably ( Thompson, 2018 ). This option is the best in the case of Volkswagen. Instead of the creditors withdrawing their claims in totality, they should free their claims and observe as the company restructures its operations. Volkswagen should take this opportunity as a window to retain its creditors and have a future.

Divestiture Strategy 

Divestiture strategy involves the sale of a portion of a firm or an entire firm ( Thompson, 2018 ). This case can only be relevant where a firm has failed to manage its operation, is intending to enter into other operations, or shifting the location of its operations. Volkswagen is an international company and selling a portion of it is unrealistic. Besides, the firm has its major operation in Germany and exports its automobiles to other nations. A sale of a portion or an entire firm is more similar to the liquidation of a firm. The problem facing Volkswagen is a simpler unit within its diesel engines that must not be solved by selling a portion or the entire firm. Instead of selling, it should improve the engine components and replace the systems with components that can ensure total combustion and filtering of the combustion products.

Strategic Alliances 

In a strategic alliance, two or more interested companies collaborate in a common project ( Thompson, 2018 ). Volkswagen is having a single issue with its turbo injectors which do not necessarily require a strategic alliance with another company for that matter. An improvement in the technology can be made by acquisition as noted above.

Consortia, Keiretsus, and Chaebols 

The terms Consortia, Keiretsus, and Chaebols have a similar meaning except for their origin, English, Japan, and China respectively. The strategy involves interlocking of two or more businesses ( Thompson, 2018 ). Volkswagen does not need to interlock itself with another company. It has a special condition, one that will bring burden to the partner and thus make it one of the list possible solutions. Instead, Volkswagen should work internally to restore its position and image in the market.

Business Strategy 

Three strategies can be applied to improve a business’ performance. A company can adopt a low-cost strategy, differentiation strategy, or a speed based strategy. A low-cost strategy is whereby a company focus on lowering the cost of production but maximizing on profit; a differentiation strategy is more specialized as a business focus on products that distinguish it from others regarding being unique. A speed-based strategy, on the other hand, involves increasing the speed of production per unit time ( Thompson, 2018 ). In choosing to produce cars with poor fuel management capabilities implies that Volkswagen has attempted Low cost and speed based strategies. The strategies have become a failure, and the company should now adopt a differentiation strategy by developing unique turbo injectors. By adopting a differentiation strategy, the company will be able to develop engines that are unique and reliable which will improve consumer perception thus enabling the company to compete favorably with its competitors. The company should measure factors in the supply chain and find where there are weaknesses to be strengthened or strengths to be exploited for the good of the company (Wisner, Tan & Leong, 2014).

Conclusion 

Volkswagen is now in the public spot due to the Dieselgate scandal than it was before. Given its complicated position and a future that is unpromising, the company should restructure by following the grand plan as discussed above. The company should avoid selling itself or liquidating its assets since the problem can be dealt with as a technological and managerial challenge. Instead, the company should proceed by acquiring more asset, developing new product lines to regain public image and encourage its creditors to remain with the company. Merging or formation of alliances should be avoided at all cost unless it is very necessary. By applying differentiation in its production, the company will be able to produce highly specialized engines that will be able to meet the international standards on environmental preservation and global warming management.

References

Frandsen, F., & Johansen, W. (2016). Organizational crisis communication: A multivocal approach. Newcastle upon Tyne: Sage

Gunnell, J. (2017). The complete book of classic Volkswagens: beetles, microbuses, things, Karmann Ghias, and more . Motorbooks.

Sumantran, V., Fine, C., & Gonsalvez, D. (2017). Faster, Smarter, Greener: The Future of the Car and Urban Mobility. Cambridge, MA: MIT Press.

Thompson, A. A. (2018). Crafting and executing strategy: The quest for competitive advantage: Concepts and cases. New York, NY: McGraw-Hill Education. 

Vlasic, B . ( 2017). Volkswagen Official Gets 7-Year Term in Diesel-Emissions Cheating. New York Times. Retrieved from https://www.nytimes.com/2017/12/06/business/oliver-schmidt-volkswagen.html 

Wisner, J. D., Tan, K. C., & Leong, G. K. (2014).  Principles of supply chain management: A balanced approach. Boston, MA: Cengage Learning.