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The Decoder: Volkswagen

‘Vision, plus system’ equals quality, says Martin Winterkorn

 

Volkswagen’s future lies in qualitative growth, says chairman of the board Martin Winterkorn. Chris Middleton asks what that means, and explores the implications of such a strategy for other, equally ambitious business leaders.

This is the first report in a new weekly series, The Decoder, which is exclusive to our digital edition. The Decoder explores the real-world impact of a leader’s strategy, and what can be learned from it.

LEADERSHIPIn 2007, the Volkswagen Group set itself a simple, but ambitious, strategy: to deliver at least 10 million cars a year by 2018. The Group includes Volkswagen itself, together with premium marques such as Audi, Porsche, Bugatti, Lamborghini, and Bentley. It also owns SEAT, Skoda, Ducati motorcycles, and the MAN and Scania truck brands.

Evidence that Volkswagen’s strategy was not just a ‘finger in the wind’ arrived in March 2014: “When it comes to our volume target, we expect to exceed the 10 million deliveries mark, in all likelihood, this year – four years ahead of plan,” says chairman of the board, Martin Winterkorn.

However, financial growth in the Volkswagen Group is increasingly being sustained by its luxury brands, particularly Porsche, which reported a surge in 2013 operating profits of 173 per cent to €2.6 billion. 

Profits at the VW brand unit actually fell by 21 per cent to €2.9 billion. Overall, the VW Group said it increased operating profits year on year by 1.5 per cent to €11.7 billion in 2013.

The figures are highly revealing: Porsche made nearly as much money from selling 155,000 cars in 2013 as the Volkswagen marque did from selling 4.7 million. While the VW Group may be focusing on quantity, its customers are focusing on quality – that’s what’s making the real money in an increasingly commoditised industry.

But for Winterkorn, the quantity and quality of cars are not the only concerns: “We also want to have the most satisfied customers, the best-motivated employees, and a strong return before tax of at least eight per cent,” he said.

A race to the top

When so many organisations are in a ‘race to the bottom’, slashing costs, outsourcing production, and becoming ever more remote from their users, customer and employee satisfaction are sometimes neglected by strategists – incredible though that may seem at a time when every customer should count. So to hear a company saying that it wants “the most satisfied customers” as a strategic goal is heartening. That it wants employees to feel actively engaged is doubly so.

Martin Winterkorn

Volkswagen chairman of the board, Martin Winterkorn

Having a targeted, high-concept strategy – such as 10 million cars a year in 10 years – can be a galvanising force within an organisation, as well as creating an impetus that excites investors and customers. Simplicity is good: it’s hard to argue with; it sets a vision; and it tells everyone that a leader has the confidence to drive towards specific, quantifiable results. But Winterkorn knows that volume isn’t the real story in the Group’s success.

Nevertheless, reaching this important milestone early allows Winterkorn now to shift focus from quantity to quality. “This is why, more than ever before, the objective of the Volkswagen Group is to achieve qualitative growth,” he explains. “That is linked to our ambition of further accelerating on our way to becoming the world’s best automaker.”

This isn’t just strong messaging, suggests Winterkorn: “The Volkswagen Group will systematically pursue its path to the top of the automotive industry,” he says. Vision, plus system: one cannot succeed without the other.

Measuring quality

Quantity is the easy part of such equations, because few strategists will set production targets that are unrealistic or unattainable. So what about the tougher part: quality, something that is notoriously hard to measure – beyond the stitching, dashboard and build quality of any manufacturer’s mid-market family car?

“Uncompromising dedication to our products, with precision down to the last detail, our zero fault tolerance… all this is part and parcel of this group’s DNA,” says Winterkorn. “It is this concept of quality that we live and breathe and implement in our vehicles. And this is the same concept of quality that we’re now transferring to all areas of the company.”

With these sorts of ideas in the air, the ‘i-word’ – innovation – can’t be far behind. Winterkorn doesn’t disappoint: “The Volkswagen Group is already the motor of innovation for the entire automotive industry,” he claims. “The Volkswagen idea factory is running at full speed. In 2013 alone, we filed around 6,000 patent applications. No other manufacturer spends more money on research and development.

“In the previous year, we spent more than €10 billion for the first time. And no other manufacturer is working so systematically [that word again] on sustainability. We already offer the largest fleet of efficient vehicles in the world with 54 model variants below 100 grams of CO2 emissions per kilometre.”

Substance in the spiel

Bugatti Veyron Mansory

Bugatti Veyron Mansory

Again, this is a refreshing approach. ‘Innovation’ is a word used too often and too vaguely in 21st century business: as a result, it’s become little more than a meme, something that leaders say because they feel they have to. But Winterkorn is attaching hard statistics to his claims to innovate: patent applications, R&D spending, carbon emissions. This isn’t just a marketing spiel.

“Going forward, we will accelerate this innovation engine even further with numerous technological developments, ideas that we’ll roll out even faster in even more brands and models,” says Winterkorn.

“On our central innovation turntable, those are our toolkits. With them we can bring model variants, technologies and innovations to large-scale production rapidly and flexibly, and this helps us to tailor our vehicles even more flexibly and more precisely to our customers’ wishes, all over the world.”

With these words, for the first time, Winterkorn is sounding more like a marketing man, ‘rolling out solutions’, complete with ‘toolkits’ and other vanilla business phrases, as leaders have done too often since the 1990s – a hackneyed form of words that often hides a lack of real content.

But again, for the systematic, clear-sighted Winterkorn, there is real grain in the wood: “For example, we will offer more and more models with the entire range of state-of-the-art drive technologies from highly efficient diesel and petrol engines, and gas-powered engines, down to pure-bred electric vehicles and plug-in hybrids.

“Thanks to the toolkits, we are also in a position to respond quickly and flexibly at any time to new market trends and shifts in demand in our development, as well as in our production. In our group, for example, electric cars aren’t built in separate plants, but they are made bumper to bumper on the same production line as diesel and petrol models.”

Winterkorn goes on to list further specifics about the Group’s innovation in action: the plug-in hybrid car, increased digitisation – interfaces that link cars’ performance with mobile communications and apps – and regional models of cars.

Directions of travel

Of the latter, Winterkorn is at pains to link Volkswagen’s future with its heritage – for successful leaders, honouring where you’ve come from is an important as where you’re going.

Volkswagen e-up!

Volkswagen e-up!, a fully electric city car

“We will systematically expand this tried-and-tested Volkswagen principle so that we can respond even more specifically to differing regional customer wishes and preferences,” says Winterkorn. “For example, this year the up! [city car] was specifically tailored for the Brazilian market and it’s being launched there. And in the USA, we’re reinforcing our model portfolio with a new mid-sized SUV built using the modular transverse toolkit, and we are working on a sporty coupe and a large saloon for the Chinese market.”

But not every event can be so readily anticipated or dealt with, even by the most systematic planning and smart manufacturing techniques; recent political developments in Eastern Europe have proved that. Volkswagen is one of the largest players in the region.

“Naturally, we are following developments in Russia and Ukraine very closely. We are in direct contact with the competent authorities,” says Winterkorn. “Like everyone, we hope that the situation is going to stabilise and that we’ll get a peaceful resolution to this conflict soon. Naturally this has repercussions on our business, on our operations. These are limited as of today. However, if things deteriorate further it can be critical.” Critical for Volkswagen, as well as for citizens in the region, of course.

As for the more predictable future, the Volkswagen Group has launched a ‘Future Tracks’ initiative to anticipate and meet the rapidly changing needs of the industry. “People’s expectations of mobility are undergoing fundamental transformations,” says Winterkorn. “What they demand for their own cars is changing faster and faster all over the world – and digitisation, in particular, will usher in revolutionary changes for automobiles and for the industry as a whole.

“Our aspiration is to be the motor behind this change. We want to shape the future of our industry ourselves and to boldly drive it forward. This is also what we really mean when we talk about qualitative growth.

“How will we develop, plan and build our vehicles in the future? How can we shorten existing model cycles and make them considerably more flexible in the interests of our customers? How independent of new models can we create additional value for our customers? How can we offer our customers even greater choice through new design or body styles and additional customisation options? How do we leverage the enormous technological potential in our toolkits to even greater effect so that automobiles retain their attraction and fascinations even in conurbations? These and many other urgent questions are what we are facing up to.”

Evidence suggests that Volkswagen Group is at least facing up to them with a clear head, a specific set of goals, and a systematic approach to anchor its ambitions in the real world. TS

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The Strategist says

Business leaders shouldn’t be afraid of setting out a simple, clear, high-concept strategy that everyone – customers, investors, and employees – can understand and get behind. Volkswagen’s recent success shows that this strategy pays dividends, particularly when it is attached to a qualitative vision that seeks to improve products, but also the lives of customers and employees. But a qualitative strategy needs granular detail and quantifiable, measurable results too. Again, in this regard, Volkswagen is making all of the right noises and backing ambition with hard statistics. But the underlying lesson in all of this is revealed by the VW Group’s 2013 financial report: it is the luxury parts of its portfolio that are making the real money in a highly commoditised sector.
Chris Middleton is founder and editor in chief of Strategist magazine.

 

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