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?