The Volkswagen Recovery: How Strategy Overcame Scandal
Introduction
Volkswagen has made affordable and individual mobility for billions of individuals. The V.W. vision shapes the mobility for the upcoming generations; they have been finding answers to the upcoming challenges and forming strategic moves towards the challenges. The Environment Protection Agency (EPA) found that the cars being sold by V.W. had an installed device that was used to boost the performance of the engine when it was being tested. This was a kind of device used to cheat the emissions tests in the U.S. This scandal forced the V.W. to have a significant push by selling diesel cars with low emissions. Thus, the company was accused of modifying the software on the 3-litre engines fitted to some Audi and Porsche cars (Boston, Campo and Viswanatha, 2017). However, V.W. denied the claim that had affected about 10,000 vehicles.
After the scandal, the V.W. boss Michael Horn knew that they had broken the trust from their customers; thus, the chief executive Martin Winterkorn resigned and was replaced by Mathias Mueller, who was the former boss Porsche. The primary objective of doing this was to recover the trust of the people. The company is now rebranding with a new strategy trying to put the emission scandal behind it. This was marked as the beginning of the new era by changing the logo and producing different designs that will create a new image in the world. The objective of the company also changed from showing a perfect advertisement to adopting the customers’ perspectives. The company uses diverse strategic designs to move on and create a new image for the company. For instance, after changing the logo, the company has also changed the male voice to female voice representations. This was done to introduce a confident, pleasant and warm voice across the market.
The company has been trying to transform since the emissions scandal emerged. The new CEO Herbert Diess is the one who took over the crisis. The company has been public relations in changing the people’s perspective and regaining the people’s trust. For instance, the company stopped advertisements, commenced a series of printing ads, and apologized to reassure the customers. This was done to try and help the company to move back where it was. V.W. also got rid of ‘Das Auto’ slogan and dropping the number of its agencies from 40 to about three. The pattern of change is mirrored across different metrics like reputation, value and quality (Markowitz et al., 2017).
Scandal, Stretch goals and Strategy at Volkswagen.
The company sets diverse strategic objectives to increase the sales of diesel cars in the United States. The primary goal of the strategy was from the push of fuel-efficient “clean” diesel cars. The market was faced with paradoxical pressures with stringent regulations of emissions that limited the engines’ performance at extreme levels. On the other hand, the consumers preferred a more substantial and high performing engine. This meant that there would be high fuel consumption, and the result was not environment friendly. For these reasons, the company was forced to look into technological solutions rather than strategic goals. This made the company to develop technological cheat devices that boosted the appearance of the goal achievement (Clegg et al., 2020). As long as public integrity is maintained, then the illusion could be maintained. However, when the knowledge came into the public, and the company had to be responsible, its reputation was highly tainted.
Stretch goals thereby entail a new approach to an existing problem. The reason the stretch is effective managerial, strategic solutions is that they trigger the corporations to respond when there is a fear of failure or demise. For this reason, stretch goals are used as a function of negative pressure and usually perceived as essential goals. Second, when stretch goals are used as a mechanism against stagnation, there are usually supported by the benchmarks. This means that if our ideal competitor can do it, then we also can. Thus selecting the appropriate benchmarks will help support the stretch goal strategy. Finally, the stretch goals are used to organize the identity positively and stress the company’s core focus (Clegg et al., 2020). The stretching goals thereby involve the contradiction between imagination and realism as impossible goals are taken too possible based on perfect future achievements.
The ideal environment that the company operates plays a significant role in decision making. This shows the power of the external environment and the importance of maintaining the overall image and positioning. The interaction of organizations with other government, individual or organizational bodies helps shape the strategic decisions and overall outcomes. For various reasons, an organization is embedded in a complicated relationship with various individuals and firms. This awareness and relationship with the external environment are responsible for shaping the company’s strategy and determine the position in the competitive market. Thus, strategizing is a process whereby one has to think of the future as the state of affairs and use that idea to manage and organize activities and coordination. The company can implement goals of a dimension of identity as symbols of the culture of innovation, creativity and ambition (Geiger and Houston, 2015). However, by understanding the principal reason for implementing change in a firm, then it is recommended to understand the effects of the appraisal. On the other hand, the stretch goals act as an intermediate when supporting a sense of internal integrity generated or justified by the external legitimacy or circumstances.
Effects of the scandal
A case of brand demise can cause a dramatic variance in its overall productivity. The whole brand depends entirely on the attitude of the public. Thus the negative publicity has a massive impact on the brand and its reputation. This effects later affects the financial profiles of the company and the overall productivity. However, the challenge becomes detrimental when the problem is associated with the brand that comes closest to the consumers’ bodies. For instance, the emission scandal had a detrimental effect that almost made the company go bankrupt. The scandal related to emissions or environment-related challenges can lead to the company (Leggett, 2019). The media being an outlet, has tremendous power that can cause critical damage to the situation. This is the main reason why, after the scandal, V.W. terminated all the advertisements and began apologizing. The media functions as a significant platform for passing the information to the customers. Thus, in some ways, it is responsible for creating a reputation and the ethical image of the company. Reputation can hold the company in such detrimental situations like hazardous effects. Different studies address the negative publicity depending on the cause and the effects of the events. In some cases, the companies’ reputation may overcome the negativity, but there is always a back down on every scandal.
One convenient way of creating a suitable strategy is first to address the situation. When the customers realize an inconvenience associated with corporate social responsibility, excessive public negativity can be triggered dramatically. This gives rise to other personal related issues that are correlated with product-related issues. The media helps the customers to acquire the information, thus building a negative public awareness based on the product. Thus, the brand responses should be altered and ideally remade depending on the negativity in public. This helps the public in making appropriate decisions based on the comments or strategic moves that will be carried by the company. Comparing the effects of the arising challenge or the rate of the negativity in public will also help the company to build a substantial remedy depending on the situation (Bender, 2015). Furthermore, a comparative investigation will build up diverse recovery options. Without close-up research, the recommendation for the recovery strategy may be noncommittal.
Recovery Strategy from Negative Publicity
From the response from the customers’ reaction, the company finds a new strategic plan that will help solve the issue and, at the same time, retain the public trust. After the emission scandal in 2015, VM CEO initiated a reaction actions such as providing interactive dialogues with the customers, terminating all the advertisements, and commenced a series of printing ads and apologizing to reassure the customers. When the company begins interactive dialogues with its consumers, they give explanations and decisions based on the appraisal incident (Boston, 2018). Doing this helps the company positively as the public may help in decision making. For instance, the incident of rebranding and changing the logo created a new image in the V.W. Company. This is because it changed the peoples’ perspective as new management and models were being created. By doing this, the company would rebuild the public trust with promising new brands that will outdo the older version. This was more of an upgrade from the previous version, which denoted a new era in the Volkswagen Company.
The objective of the recovery strategy is overcoming or diluting the scandal and restoring the brand’s reputation. There are three recovery strategies: informational, functional and effective. The effective recovery refers to a tactic used by the corporations to express their brands’ compassion and remorse about the incident publicized. The company offers the public a statement of acknowledgement that makes them responsible and expressing regrets to the customers who may have experienced discomfort while using the product. This technique has a competitive advantage, positively the company by regaining its customers’ trust and successful reestablishment (Sloat, 2016). On the contrary, functional recovery is a more practical approach that provides compensation as a remedy or provides special incentives. V.W. is a big company that was already established in the car industry. Creating a discount on their products was one of the exciting ways that made them ease their call of recovery. Informative recovery is a technique to overcome the negativity of the public by holding the press and addressing the situation. However, the V.M. scandal was way much detrimental; thus, this technique could not be used. When there is visible evidence on any scandal, the corporation is usually forced to change the management or even the brand. This is the method used by Herbert Diess (the new CEO). This helps in making lid of such incidents and generating a new image of the company. When the brand and management are changed, there is much more assurance to the public that the problem will end dramatically. Recovering such a large company may take a long time as they are other competitive companies that take advantage of the situation.
The Volkswagen Recovery
The strategy is regarded as the knowledge and the capability to accomplish things. Knowledge is the crucial feature of strategy. In an instance of rebuilding the brand, the company should be particular about featuring the causes of the appraisal incident and find an alternative and effective way to address the situation (Thakkar and Khan, 2016). Capability is the power of making things done and is needed to make sure that the plans and vision are reached. The recovery of Volkswagen involved a paradox: the more the future correlates to the past. The strategy will be a way of devising a way of dealing with the situation. The first thing that the new CEO thought of was to regain the trust of the people. By doing this, the company launched an internal inquiry like recalling millions of cars worldwide. The company set aside about 4.8 billion euros to cover the entire cost, which resulted in the company having a first quarterly loss. However, that was not the end as the EPA had the authority to fine the company up to $37500 for each car that breaches the standards. Martin Winterkorn, who was then CEO, was unable to remain in the position as he had lost the support of the principal shareholders.
The strategies seemed to be working in bringing the V.W. brand to where it was in terms of customers’ perception. Moreover, after the scandal’s appraisal, the company turned down all the advertisements and began a series of reuniting itself with the clients. Changing the brand’s logo and some other features was a part of reassuring the customers in trusting them. However, the brand is still in recovery for four years. Before the Dieselgate broke, the score of the brand was 25.3. However, after the scandal, the score dropped significantly to -1.6. From the time the brand has been in recovery, getting a score of 20.5. This was a comeback, but still, it was yet to reach its previous scores. The pattern is mirrored along with other metrics like the brand’s reputation, value and quality. However, in terms of sales, V.W. has overtaken the prior scores with a new measure being 8.1 as compared to the one in September 2015, which was 7.3.
The Evolvement of Volkswagen after the Emission Scandal
After the scandal in September 2015, when the EPA found that V.W. was using a cheating device to change the performance and improve the test results, the company had to admit that they have been cheating on the emissions tests. Several executives stepped down, including that CEO. The change’s primary aim was to drag out the company from the abyss of the worst reputation crisis they have ever faced. The company agreed on paying an amount of over $ 4.3 billion to settle criminal and civil allegations over the emissions cheating schemes. This had involved about 590,000vehicles in the United States. The company was also forced to plead for guilty in three courts, which lead to several penalties in the civil claims. Thus, the company had to work with an independent monitor for three years. This crisis hit the company across the board, denting its market share, external/internal stakeholder’s trust and the brand’s image severely (Inagaki, Milne and Sharman, 2015). The diesel scandal has been termed one of the most significant weaknesses of the company.
Moving on from the emissions scandal and retaining the company’s reputation included several changes in the system. For instance, Volkswagen changed its logo and launched an all-new Jetta compact car used to revive sales in the auto market. V.W. Jetta went on to become the largest seller in America. The introduction of these cars created an opportunity for the company and thus holding them on the highly competitive market. In one of the recovery media event, the Volkswagen CEO Mathias Muller declared that the company would do everything in their power to acknowledge their products and honour the confidence of their customers (Wilmot, 2016). This media event was then titled as Volkswagen shaping the future. The company was moving away from diesel engines that had once dominated the company product line. The scandal had cost the company billions of money as they were forced to compensate nearly 500,000 vehicles sold in the United States. The North American sales had collapsed after the scandal, but they still managed to climb b about 15% in the following years.
