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Group 1: MBA 535

Operations and Supply Chain Management

Case Study: Volkswagen Operations Emission Scandal

Taylor Fien, Luke Cerullo, Benjamin Avila

AGENDA

01.

Executive Summary

AGENDA

02.

Current state of Affairs at Volkswagen

03.

Current Issue Analysis

04.

Recommendations for Improvements

05.

Conclusion

What Happened?

Executive Summary

Strategy 2018

In the 2011 Annual Report CEO Martin Winterkorn announced:

  • Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in quality and customer satisfaction.
  • Volkswagen's goal is to increase unit sales to more than 10 million vehicles a year.
  • Volkswagen intends to increase its return on sales before tax to 8% or higher to ensure financial comfortably
  • Volkswagen aims to be the top employer across all companies and brands.

Diesel Gate

Before 2009 Volkswagen realized they would not pass the EPAs Emissions tests, so to uphold their reputation, they decided to cheat.

Volkswagen used a software designed to reduce emission levels during testing.

Update 1

The Decision to Cheat

After pressures from Strategy 2018 and the realization that the company would not be able to stay within the Tier 2 emission standards the decision to cheat was made.

Chose to focus on "Clean Diesel" Campaign

Both CEOs and employees were forced to keep the faulty testing a secret.

Volkswagen Current Issue Analysis

Current Issue Analysis

Current State of Affairs

In 2014 Volkswagen was producing 41,000 vehicles per week.

Competitive Advantage: Attractive and environmentally friendly vehicles.

Tier 2 EPA standards cut allowable nitrogen by 83%

Volkswagen battling Porsche over company stakes.

EVENTS

The US EPS discovered that 482,000 Volkswagen diesel cars on american roads were emitting up to 40 times more toxic fumes than permitted.

In 2015 Volkswagen emitted to cheating emissions testing by programming the engine software.

Where does that leave us?

Defeat Devices

How did this happen?

Volkswagen was one of the world’s most successful automakers

How VW arrived at this point

Leader in "clean diesel"

Created its own path

Created a devoted following

Balanced Scorecard Analysis

Internal Business Processes

Balanced Scorecard

Customer

Learning & Growth

Financial

Customer

  • Broken trust in the brand
  • Negatively impacted auto dealerships
  • Focused too aggressively on sales metrics
  • Customers bought VW vehicles for clean diesel technology
  • Magnified cynicism

Learning & Growth

  • Company's ability to anticipate trends
  • Success “hinges on the early detection of future-oriented developments and trends”
  • Did innovate in time for Tier 2 standards
  • Exceedingly difficult task for engineers
  • Nitrogen Oxide (NOx) Emissions
  • Up to 40X legal limit

Financial

  • 2007 Growth Plan: "Strategy 2018"
  • Cut corners to save costs
  • Customer satisfaction & unit sales
  • Top employer
  • $33B for fines, fixes, and legal fees

WHAT'S

NEXT

New Executive Team to Begin Visiting Plants to Aid in Building and Redefining VW's Culture

Feedback to Be Sourced Directly from Employees Regarding Desired Changes

(To begin Q2)

Recommendations for Management

Begin Development of New Internal Operations Audit

(By End of Q1, with Q4 Deadline)

Recommendations

MAR

FEB

JAN

Executive Team Overhaul - Talent Search to Begin Immediately

(Within First Month)

Executive Team and Plant Managers to Convene and Design New Operating Incentives Utilizing Employee Feedback

Enact Zero-Tolerance Policy

(To begin Q3)

Leadership

Benefits & Risks to Stay Mindful Of

01.

02.

03.

New Incentive Design

Pros

  • Will serve to promote sound, ethical business practices
  • Can be interwoven with "doing the right thing" to support new culture

Cons

  • Incentives crafted hastily could produce a contrary result
  • It is difficult to place greater emphasis on values than pure monetary rewards

Zero-Tolerance Policy

Pros

  • Will effectively demonstrate to employees and stakeholders alike VW's commitment to change
  • Will complement new incentives
  • Further discourage corner-cutting and its perceived severity

Cons

  • Reckless enforcement could create culture of fear
  • Unwarranted firings may result from power-hungry managers

Executive Overhaul

Pros

  • Will inject new life into the organization
  • Aid significantly in redefining VW's culture

Cons

  • Talent search will be difficult and costly given state of organization
  • Candidates will expect a premium for the inherent risks of their new role

Operations

OPERATIONAL CHANGES

Revamp of Internal Operations Auditing

Transform Expectations from Sales-Driven to Culture-Driven

  • Far greater transparency into daily operations
  • Greater emphasis can be placed on accountability
  • Increase manager & employee mindfulness of best practices and expectations
  • Support new culture and VW's commitment

  • Achieved by replacing sales & production metrics with regulatory & customer-satisfaction metrics
  • Employees more inclined to stress quality and meet standards over pure efficiency
  • Bridge VW's culture with employees' day-to-day operations
  • Support buy-in by assuring employees recent changes are not a facade

Reference Page

References

References

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References (cont)

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References (cont)

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