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Volkswagen Do Brasil - Driving Strategy with the Balanced Scorecard

Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard

Index:

1. What challenges does Thomas Schmall face upon becoming CEO of Volkswagen do Brasil

(VWB)?

2. Describe VWB´s new strategy

3. What are the benefits from having all employees understand the strategy?

4. How does the strategy map and Balanced Scorecard help Schmall and Senn implement the

new strategy?

5. What are the strengths and weaknesses of the Scorecard and its implementation?

6. What other actions did VWB take to support strategy implementation?

7. How can Schmall and his team use the scorecard to deal with the challenges faced by

company in January 2009?

1. What challenges does Thomas Schmall face upon becoming CEO of Volkswagen do Brasil

(VWB)?

Before Thomas Schmall was appointed CEO in 2007, he already gained knowledge about Brazil and the subsidiary while reorganizing production in 1999 to 2003 until he was sent back to Europe. This crucial fact helped him quickly adjust to the different company culture, strategy and overall mindset existing in Brazil. Before analyzing the challenges he faced as CEO in 2007, the question arises why he didn´t respond to the known problems during his four years working in Curitiba? VWB would have saved enormous resources, if they had rigorously responded to the problems earlier. Thus VWB suffered eight consecutive years from losses, lost market share tremendously, made the subsidiary bureaucratic and created an atmosphere of apprehension and instability among the workers, as J.-F. Senn (VP Human Resources) commented.

Problems that Schmall had to cope with can be divided in external and internal ones. Before tackling internal problems, external obstacles need to be analyzed. Their impact has a vital influence on internal actions to remedy impediments within the company. First and Foremost Schmall needed to handle the vast decrease in domestic market share which proceeded continuously over the years. This led to an all-time low in 2003 with 21 % behind Japanese and French manufacturer.

VWB also struggled sticking to their export-led strategy and maintaining production minimum because of “the appreciation of the Brazilian currency, relative to the dollar and euro, along with increases in the local labor and raw materials costs”, as Schmall pointed it out. Another problem was that VWB couldn´t increase prices on shipped products, because of stiff competition in automotive world-wide. As a result company´s excess capacity costs wouldn´t be covered by

insufficient export margins. Internal wise Schmall had to bear with inefficient processes on the shop-floor and administration, like reliance on cost reduction, employee layoffs and capacity downsizing. Nevertheless, the biggest stumbling block would be changing the mindset of the employees. Employees work dedication negatively reflected in the scale of absenteeism, company identification and ideas for improvement showed Schmall that it was high noon for VWB to undertake tremendous cultural and strategic change.

2. Describe VWB´s new Strategy

VWB´s new strategy was multifaceted and consisted basically of four major objectives that guaranteed that VWB would regain position as market leader Brazil and strived for #1 producer of the South American automotive market. To realize their strategy they needed to “build a high performance team that would drive VWB to become South American industry´s leader in quality, innovation, sales, and profitability on a sustainable basis”. Further “Re-Branding VWB into one with enthusiastic and highly-motivated employees who continually introduced high performance, innovatively-designed cars and light vehicles”, but also Senn mentioned that “they wanted a new culture for employees to solve problems as they arose, eliminate defects, and reduce health and safety incidents even if these actions cost money and decreased short-run production output. The last objective that the executive committee had to cope with was changing VWB´s bureaucratic and slow moving company culture. Therefore they had to build new relationships with key stakeholders: employees, suppliers and dealers.

3. What are the benefits from having all employees understand the strategy?

When employees hear the word change from their supervisor their response or thoughts won´t be positive in most cases. This is because every human being gets comfortable and used to a certain routine. Even if this change might help employees it´s from the utmost importance of supervisors to point this out in a detailed and clear manner. This is even more important in the particular situation that VWB´s executives had been. VWB generated losses consecutively from 1998 to 2006 and employees lived under the threat German headquarters would shut down the entire operations in Brazil. Therefore top and middle management had to prioritize communication within the whole company that employees didn´t get the wrong impression, that this undertaking is only a headcount for reductions.

Another positive aspect of a clear understanding of the strategy is that employees can only fulfill the expectations when they know what needs to be done and more important why it needs to be done. If all employees can be convinced that everybody is working towards the same goal, it can and will create a dynamics between employees that enhances team-orientation, group- bonding and dedication to go the extra mile for team-members, fellow workers and last but not least the underlying strategy´s objective.

4. How does the Strategy Map and Balanced Scorecard help Schmall and Senn implement the

new strategy?

These two tools initiated by Schmall and Senn help to implement the strategy in several ways. In general they help translating the strategy into objectives, monitor progress and display the

correlations between cause and effect. The Strategy Map for example helped filtering out four dimensions: Financial Challenges, Customer Challenges, Internal Processes Challenges and Potential and Growth Challenges and additionally displays “how intangible assets, such as employees, get converted into tangible financial results”. All these dimensions have underlying metrics that illustrate what is necessary for conquering the obstacle. This strategy map organized and separated key factors VWB had to work on if the wanted to succeed with their overall vision to evolve to #1 automotive manufacturer in South America. In a nutshell it translated high-level objectives into unambiguous tasks that can be realized and supervised efficiently.

The BSC was the perfect tool to measure, define and monitor outcome. All challenges inherited an objective, scope and the right metrics to review the current status. This was extended within the entire company for all objectives and shop-floor employees could immediately display the actual status of their work. When problems occurred they could identified in a quickly manner and the responsible project team could work on a solution with shop-floor workers and the responsible coordinator. This open-door policy of management reduced production shutdowns significantly and reduced resulting costs.

Without the BSC and Strategy Map VWB´s executive team wouldn´t be able to improve their relationships with all stakeholders in such a timely fashion. VWB needed to deal with scare resources and high time pressure, due to the fact that the German Headquarters expected results and not shutting down their so far inefficient subsidiary in Brazil. In a nutshell the BSC and Strategy Map brought VWB back on track and changed company strategy and culture tremendously.

5. What are the strengths and weaknesses of the Scorecard and its implementation?

The BSC is undoubtedly a powerful management tool to reorganize company culture and strategy aggressively, though it also has its weak spots. Implementing it into a company is in the beginning time consuming, until everybody understands how to work with this tool. Therefore management needed to train facilitators that educate their roundabout 20.000 employees. This stresses financial resources and capabilities of top-management to cope with the high structural afford required to constantly communicate to, pursue and include all stakeholders until the BSC is accepted and understood.

Once bore with the downsides the BSC facilitates unique team-bonding, a high level of transparency and efficiency, because every employee knows his part within the company´s strategy. It provides long-term reliability for the company´s pre-defined objectives and generates validated results through the right metrics. It is also a universal applicable measurement tool that displays “financial and non-financial measures each compared to a target value within a single concise report” (www.wikipedia.com/balanced_scorecard).

6. What other actions did VWB take to support strategy implementation?

Besides intensively communicating their BSC and Strategy Map, they set up Plasma Screens on the production lines where workers could monitor the several production steps and being

reminded of the company strategy via illustrating the Strategy Map and introducing the interactive role game. Further VWB´s executive implemented a systematic process of improvement in which employees got rewarded by contributing their ideas to drive down costs. The best ideas were presented in front of roughly 1500 employees, which also motivated employees in a non-financial way. Another action was a role game based on an interactive learning map, for which they educated more than 200 facilitators that should convince and train all 20.000+ employees to participate in this game. Employees received token for solving problems and answering questions concerning VWB´s strategy. The BSC Management Group posted the strategy map in every room in the company as a constant reminder of the company´s direction. VWB also presented a mascot, which was established during an internal contest. GIGA called the meter tall robot appeared at several events to shake hands and asked employees about the strategy. It also helped communicating the strategy within the company´s internal comic published in the VWB newspaper.

7. How can Schmall and his team use the Scorecard to deal with the challenges faced by company in January 2009?