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A strategy map and Balanced Scorecard was developed by a new management team at Volkswagen do Brasil (VWB). It was aimed to achieve a turnaround and cultural change after several years of financial losses and market share declines. The strategy map is utilized to relate and connect the financial and project resources to the strategy. It also seeks to encourage the employees through reward and recognition programs. The company also brought in its suppliers and dealers to the strategy. However, the global financial crisis of 2008 brought a sharp decline in sales. Thus, the executive team is facing the question of whether to cut back on its production levels and funding until such time when the company recovers, or to proceed with its future investments.
Robert S. Kaplan; Ricardo Reisen de Pinho
Harvard Business Review (111049-PDF-ENG)
October 25, 2010
Case questions answered:
- How could the new management team of Volkswagen do Brasil resolve the problem of losses caused by the Great Depression?
- Should the company move for capacity downsizing, cost reduction, and employee layoffs?
- Present an alternative solution to the problem that the company is facing.
- What challenges does Thomas Schmall face upon becoming CEO of Volkswagen do Brasil (VWB)?
- Describe VWB’s new strategy.
- How does developing the strategy map (SM) and the Balanced Scorecard (BSC) help to implement the new strategy? What are the strengths and weaknesses of the scorecard and its implementation?
- How can Schmall and his team use the scorecard to deal with the challenges in January 2009?
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Case answers for Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
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Executive Summary – Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard Case Study
2007-2009 marked the Great Recession. It was the worst global recession since the depression . The Great Recession was caused by high-interest rates needed to curb the stagflation. National economies slowed down, and the effects of the recession could still be seen three years later, until 2012, in many sectors. This case study presents the strategic thinking of the CEO of Volkswagen do Brasil (VWB), Thomas Schmall.
In the initial stages, the company had survived due to a brilliant measure that he called the Driving Strategy. The turnaround had been successful. There was a new enthusiasm amongst the dealers, suppliers, consumers, and the workforce amidst the recession to get back on their feet (KAUSHAL, 2017).
Despite this enthusiasm and renewal of effort, there was no tangible change in the overall outlook of things for Volkswagen do Brasil. By January 2009, the full impact of the recession was visible, and it was a worrying one. Consumers were yet to return to their pre-recession spending, and the company needed to manage expenses. Already there was a pileup of vehicles fresh out of manufacturing waiting to find a new home, and expenses were rising. It was like running a car with no fuel. It was bound to break down sooner or later.
Countermeasures were put in place in anticipation of the deflated economy, such as the slashing of funding, minimal to no manufacturing, but continuing this hiatus on production and sales would hurt the bigger picture. Volkswagen do Brasil was planning for the expansion of its market share & development of new products. The cautious approach could only be continued to a certain extent. It was time to make a decision.
The decision to be made by Volkswagen do Brasil was a difficult one. There was an uncertainty on the effect of the Great Depression on the Brazilian economy. It also affected the extent of the reduction of global trade and economic growth. There was a dilemma, whether to resume higher production levels & discretionary spending for the various initiatives on the scorecards of each executive.
The Brazilian automotive sector contributes to 19% of Brazil’s total Gross Domestic Product (GDP). The Volkswagen Group (VWAB) has a 10.3% share of the global market. The Brazilian subsidiary of the VWAB is the 3rd largest of the conglomerate. Initially, sales boomed, but the period of1997-2003 marked the presence of multiple regional and global crises, which resulted in a drop in sales and an offset of progress to the 1997 period.
VWAB operated based on an export-led market strategy, which backfired significantly as the export margins failed to cover excess capacity costs, and Volkswagen was not in a position to be able to increase product price mark up. These factors were competing against the appreciation of the Brazilian currency against the US dollar and European euro, an increase in the costing of local labor & raw materials.
From 2003-2006, Volkswagen do Brasil implemented a multi-phased restricting plan. However, the progress was ultimately barely tangible against the consecutive report of losses year after year. Even though the depression ended, the company continued to report its 8th consecutive year of losses in 2006. To battle this, a new VWB management team was appointed.
The VWB had been relying on capacity downsizing, cost reduction, and employee layoffs, i.e., the standard procedure to attempt to overcome losses. Clearly, an alternative solution was required (Financial News, 2020).
Schmall had an ambitious want to reform the VWB team such that it became a high-performance team and led the Volkswagen do Brasil to become…
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