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 VWBs 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 couldnt increase prices on
shipped products, because of stiff competition in automotive world-wide. As a result
companys excess capacity costs wouldnt 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 VWBs new Strategy

VWBs 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 industrys 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 VWBs 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 wont 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 its 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 VWBs 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 didnt 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 strategys 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 VWBs executive team wouldnt 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
companys strategy. It provides long-term reliability for the companys 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 VWBs 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 VWBs strategy. The BSC
Management Group posted the strategy map in every room in the company as a
constant reminder of the companys 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 companys 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?