Strategic Analysis of Porsche cleopas chiyangwa

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Strategic Analysis of Porsche cleopas chiyangwa

  1. 1. STRATEGIC ANALYSIS OF PORSCHE CLEOPAS CHIYANGWA 1.0 With reference to relevant literature, critically discuss the role of swot analysis in strategic planning. Strategic planning describes the process a business uses to determine how it can best meet its objectives and carry out a mission. Swot analysis is planning tool that can help managers evaluate the chances that a certain project will succeed. It is defined as an analysis of the internal and external factors performed as part of developing the organizational strategy. The term “SWOT” is an acronym for the words ”strengths”, “weaknesses”, ”threats” and “opportunities”. The swot analysis is the key stage in strategic planning for flushing out that major strategic issue to be addressed such as in this case. Porsche being founded in 1931 by Professor Ferdinand Porsche a legendary engineer in motor vehicle development work and consulting services it’s has not been spared by the effects of the economic recession. The notion that business does not operate in a vacuum is a crucial fact in analyzing the environment in which Porsche operated. An economic analysis of the recession depicts that in 2008, Porsche had been exposed to external economic factors such as, high unemployment, more conservative consumer spending, stringent emission standards and increased cost of raw materials. Internally, economic related factors were aging product line, introduction of Cayenne, Panamera and 911 (DeBalsi, 2011:01). Subsequently, the strategic alliance with Volkswagen (VW) was imminent for the sharing of technology and innovation to develop the SUV (Habib, Huffman, Mitchell & Rayess, 2012) .These truly strategic issues are usually few in number, and huge in the importance to the performance of Porsche. With these elephant like issues clearly identified a swot analysis can be utilized. A swot analysis is a tool to assess the industry and to develop strategies to remain competitive. 1
  2. 2. This is a simpler way to focus aspects of the company and business sector and to organize the findings to evaluate the current status of the business, future prospects and the economic climate. According to Rayess et al, 2012, a swot analysis promotes critical and specific thinking to enhance strategic plans and objectives. The work is not patchwork it involves a rigorous, comprehensive and very thorough review of the enterprise capabilities and environmental challenges. 1.1 Use the swot analysis framework to evaluate factors within Porsche’s internal and external environment. Swot analysis is an essential strategic management tool; Porsche is a living tradition of a profitable automotive manufacturer of luxurious high end car. The Porsche elegance offers a comfortable and spacious blended car that is segmented as luxurious high end car segment that is rich in style. The swot analysis is the result of a jointly developed methodology and allows detecting the strengths and potentials of Porsche. It is a learning process that forms a transition basis to Vw ownership can be fostered. The table below is a depiction of the swot analysis for Porsche. Table 1 shows the S.W.O.T analysis of Porsche. SWOT ANALYSIS: PORSCHE Strength Exceptional brand visibility 1. High driving position which provides a smoother driving experience. 2. Powerful engine with 500hp @ 6000 rpm with top speed on 170mph. 3. Classy advertising 4. Cruze control which provides smoother driving experience. 5. Engineering capabilities 6. Comfortable interiors. Weakness 1. Has been able to completely capture huge potential in emerging markets like, India. China etc. 2. Strong competition in premium SUV markets means limited market share. 3. Hire reliance on the US market 4. Not diversified 5. Small in size and revenue compared to competitors 6. Unionized labor. 2
  3. 3. 7. More agile than competitors Opportunity 1. Leverage Porsche brand to expand product line 2. Implement innovative features to face competition. 3. Increase in manufacturing units to penetrate in domestic markets 4. Expand the market by well spread distribution and servicing network across the globe. Threats 1. Government regulation and policies. 2. Impending recession which may decrease purchasing power of elite class. 3. Intense competition from automobile giants catering to the elite class. 4. Declining core markets sales 5. Foreign currency fluctuations In summary the swot analysis depicts why Porsche remained a profitable company manufacturing luxury sports cars for more than 70 years. The reasons of success are innovation, design and brand reputation. More so, a strategic alliance with VW meant benefits from the synergy by helping other brands to improve their innovation, manufacturing and quality. However, there has been a plethora of external and internal pressures such as political changes in legislation in the US, cash flow management problems and economic challenges. The vital challenge or threats for Porsche was the change in regulations in the US on gas emissions of one car to be less than 39mpg per car in 2020. Porsche will not be able to sell in the US unless the law in enforced in 2020. To consolidate the importance of swot analysis it can be concluded is that Porsche has a strong manufacturing infrastructure in German thus it can brand equity to introduce other product line. 3
  4. 4. 2 With reference to the relevant theory, critically discuss how Porsche’s competitive strategy is to change V’Ws ownership. The car industry is characterized of overcapacity and very hard competition among the manufacturers. Exclusively, some manufacturers focus on emotional values and exclusiveness, they are called premium brands. The development of new entire models is an expensive project and the cost of development of shared among other brands. Since Porsche suffered from aging brands there was need to diversify and extend the product line. However, extension of the product line had dire effects of brand dilution since Porsche was exclusively known as a high performance sports car (Cato, 2007) In a statement the CEO of Porsche envisaged that, “We were working with Volkswagen on the next generation of the Cayenne (which shared its structure with the VW Touareg and Audi Q7) and I wanted a clear connection to safeguard Porsche’s interests. We could not do this alone”. (Hutton, 2007) This shows that Porsche needed to share knowledge and technology platforms with VW in order to indulge in a brand extension. The acquiring of VW had many benefits to Porsche however this meant alterations to the competitive strategy. While Porsche looked at the VW takeover as a way to leverage synergies, Porsche and VW would exist as two separate companies that would sit under a new holding company called Porsche SE. This new organizational set up can be depicted with the organizational chart below. Table 2 below shows the new organizational chart to be adopted by Porsche on acquiring VW. 4 Bentley 100% Lamborghini 100% Seat100%Audi99.4 % Skoda 100% Porsche SEPorsche SE VolkswagenVolkswagenPorsche AG 100% 100 Porsche AG 100% 100 Design (65%) Design (65%) Engineering (100%) Engineering (100%) Consulting (100%) Consulting (100%) VW 100%
  5. 5. Source: Porsche Annual Report 2009. In reference to table 2 above, it shows that Porsche has to maintain its reputation since it is a brand known for its high performance sports cars. Since the launch of the Porsche 356 in June 1948, the brand has remained loyal to this ideal and continues to produce vehicles known for their speed and manoeuvrability. Porsche is a luxury brand marketed towards affluent consumers, primarily males, looking for a fun car that makes a statement of youth, prosperity, and confidence. Therefore, it is easy to see why Porsche brand loyalists might have had a problem with the introduction of the Cayenne- an SUV built using traditional Porsche styling and performance but combined with components promoting family, outdoor, and transport activities. In other words, the Cayenne represents a brand extension that, according to many enthusiasts, may have pushed the edges of the traditional Porsche image a little too far.Porsche had a lot of problems during the 1990’s with old fashioned production methods, few models and down turning sales. In the year 2000 Porsche developed a SUV (sport utility vehicle) call Cayenne which became a real success in North America. In 2005, Porsche bought 18.65% of the shares in VW thus its ownership increased to 27.4 %. This ownership implies that there is a close relation between VW and Audi. At that time VW controlled 99 % of the shares in Audi. Porsche has also very loyal customers and there are several Porsche clubs around the world. Porsche has never been stronger than it is today could be also the fact that VW and Porsche’s histories were intimately intertwined. The product portfolio has never been as wide as it is today and the company makes high profits to its owner. It is likely that a wider cooperation in product development between W and Porsche especially with Audi will be established in the future. In the segment of sporty cars Porsche is a very strong and aggressive competitor. Porsche’s brand name has established itself as a symbol of quality and style as well as outmost technical skill and performance. It has managed to preserve its image as a manufacturer of great sports cars for more than half a century. Porsches desire to grow, however conflicts with its niche strategy. The first step in expanding beyond its niche and thus increasing revenue was the recent introduction of the SUV. Further 5
  6. 6. growth would mostly require Porsche to leave its niche even more endangering the image that has built over the decades. Thus it is crucial for Porsche to make a good strategic decision as to whether the risks of expansion in the sedan market are justified when the company’s core market is put at stake. Moreover, its competitive strategy needs to be reviewed and reevaluated in the light of dire need to grow and decide whether expansion of the product lines would be more profitable for the company. Porsche quickly became aware of several other problems associated with the preparation and introduction of their first SUV. Online brand communities, such as Rennlist, suddenly became combat zones for Cayenne supporters to contest the many complaints made by disappointed Porsche owners who thought the SUV’s introduction marked the end of Porsche as they knew it. Porsche loyalists complained about the authenticity of the brand after it became apparent that the Cayenne was a product of many different countries and only the final assembly. (Brown, 2000). An imminent fact was that Porsche’s had began getting compared to SUVs made by companies such as Hyundai and Volkswagen rather than their usual niche of BMW and Maserati which means that the customers perception about the Porsche brand had been altered. Porsche’s takeover of VW was seen by many as a wise move for the small, independent car company that, unlike rival brands Jaguar, Ferrari, Lamborghini, and Lotus, had managed to avoid being gobbled up by the auto industry’s giants the likes of General Motors, Chrysler and Ford. There was, however, a key strategic question about Porsche’s acquisition of VW that was not receiving a lot of press: A matter of concern was the whether the long-term stability of Porsche’s engineering and design prowess was at risk by bringing VW “in-house”. Since change was crucial considerations were to be given on moving from the generic differentiation strategy to cost based one. Engineering and design were considered the hallmarks of Porsche’s competitive advantage, and rather than keeping its R&D under tight wraps, Porsche shared its R&D team of 2,300 engineers with outside companies, and had built a lucrative engineering services business based on this model. 6
  7. 7. According to Okeson, 2001, who envisaged that through its 100% wholly-owned customer engineering, development company, the Porsche Engineering Group (PEG), Porsche made its wide-ranging expertise in the development and production of vehicles available to clients from a variety of industries. PEG was considered Porsche’s “secret weapon, enabling it to employ more engineers than if it worked alone, giving it an edge in product development.” Porsche’s small size and market niche made it easier for other auto manufacturers to trust that Porsche would not use the technology knowledge attained through its engineering services division to compete head-to-head. Bringing the R&D functions of the two firms too close together could potentially weaken Porsche engineers’ sense of belonging and demotivate them. While Porsche was a company that thrived on healthy profit margins, VW’s business model was all about volume. Furthermore, if Porsche engineering was too closely associated with the entire VW portfolio, the company could lose its ability to sell external engineering to other automotive manufactures concerned that Porsche would be sharing strategies and innovations with VW. The question facing Porsche’s senior leadership was how to ensure that the integration of Vw did not negatively affect Porsche’s outside engineering business and overall competitiveness. Furthermore, forming closer ties with VW would also enable Porsche to benefit from VW’s more fuel efficient technologies at a time when new emissions regulations would come into effect. On a macro level by acquiring VW, Porsche was helping protect itself from the ups and downs of the auto sector since it wasn’t going only to operate in a niche market.The merger between Porsche and VW sparked concerns whether the company will fall into a cultural demise which Daimler-Chrysler went through. However, Porsche management was adamant that Porsche brand and culture would remain well protected. In this light it was certain that Porsche was no longer small, nimble carmaker focused solely on the luxury sports car market. With VW under its wing Porsche would penetrate other untapped markets with development and exquisite design of new car models. It is important to note that in a capital intensive industry, efficient international expansion of production yields greater economies of scale and increases market penetration. VW employs a transnational strategy by modifying current models according to the demands in international regions. Porsche however, employs a global strategy whereby it offers 7
  8. 8. the same models to the global village. VW’s ownership meant that it has to focus on improved engineering and quality. 3.Using Porters Five Model of industry competition; critically discuss the competitive dynamics within the industry in which Porsche competes. Porter five forces analysis is a framework for industry analysis and business strategy development. It populates upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. Three of Porter’s five forces from external sources which can be also referred to as the macro environment. These are horizontal competition, the threat of substitute products or services, and the threat of new entrants. In contrast the remainder is internal factors which are known with a general term micro environment these are forces from vertical competition such as the bargaining power of suppliers and the bargaining power of customers. It is an inevitable desire for every company to compete effectively within the global market. Porsche’s competitiveness does not depend only on the effectiveness of brand visibility, customer loyalty, historical milestones and achievements but also how it is out plays its rivals in the face of various competitive dynamics within the automotive industry. The rapidly changing environments of the free markets dictate that companies fully utilize their competitive advantages to remain a market leader. Management must evaluate the opportunities and threats from the external environment in order to build competitive strategy that take advantage of their strengths and to shore up its weaknesses.Porters model is a logical and efficient process of developing coherent strategy in light of environmental forces that are exposed to Porsche. Michael Porter identified five forces that influence an industry. These forces are: (1) degree of rivalry ;( 2) threat of substitutes; (3) barriers to entry; (4) buyer power; and (5) supplier power. For more on this framework proposed by Porter like other industries operating under free market, capitalistic systems, viewing the automotive industry through the lens of Porter’s Five Forces can be helpful in understanding the forces at play. 8
  9. 9. Applying Porters model to make a strategic qualitative evaluation of Porsche’s competitive environment the following had been deducted. In any competitive industry there are five basic forces at work that determine long-term industry profitability. The collective strength of these five forces determines the potential for firms in the industry to earn returns on investment in excess of opportunity cost of capital 3.1 Threats of Substitutes The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of transportation are available, but none offer the utility, convenience, independence, and value afforded by automobiles. The switching costs associated with using a different mode of transportation, such as train, may be high in terms of personal time (i.e., independence), convenience, and utility (e.g., luggage capacity), but not necessarily monetarily (e.g., round trip train fare on would most likely be less expensive than the cost of fuel consumed on a similar round trip, daily parking, car insurance, and maintenance).The exception to this statement occurs in the global urban areas with high population densities. In these areas, the substitutes available (e.g., walking, mass transit, bicycles.) can be less costly than automobiles and thus alternative modes of transportation are often preferred. Also, there are inherent underlying social and cultural attitudes that keep people from owning automobiles in some parts of the world. Many nations are not as spread out or as mobile as the U.S.; they are constrained either by geography, race, class, or religion and the need for personal transportation is not as great, yet. The American dream of “a car [or two] in every garage” is not what the rest of the world currently wants or needs. However, the marketing arms of the global automotive manufacturers are certainly working very hard to change this paradigm, and with unprecedented production volumes worldwide, all signs indicate that they are succeeding. Most with the ability and means to own a vehicle, who live in a society with the necessary infrastructure (e.g., roads and fueling stations), will do so. 9
  10. 10. 3.2 Entry Despite a number of new entries in recent years into the premium brand arena, entry to the market requires substantial investment from an already established brand hence it is unlikely that new competitors will threaten Porsche. Large economies of scale are required to compete in the required price range quality level and production differentiation is largely brand and history based. Loyalty to the Porsche brands is high and switching costs are high. Distributions need to be achieved on a worldwide scale. Consequently there are a limited number of suitable brands remaining who could pose a threat to Porsche. The barriers to enter the automotive industry are substantial. For a new company, the start-up capital required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. An automotive manufacturing facility is quite specialized and in the event of failure could not be easily retooled. Although the barriers to new companies are substantial, established companies are entering new markets through strategic partnerships or through buying out or merging with other companies. In fact, the barriers to entry for new (or different) markets may be quite low; in the 1980s, U.S. companies practically invited Japanese makers into the U.S. by failing to offer quality vehicles in the lower price markets. All of the large automotive companies have globalized and entered foreign markets with varying degrees of success. In the newer, undeveloped markets of Asia, Africa, and South America, the barriers to entry similarly exist. However, a domestic start up, with local knowledge and expertise, has the potential to compete in its home market against the global firms who are not yet well established there. Such an operation, if successful, would surely be snatched up by one of the global giants and incorporated into its fold. 3.3 Nature of Rivalry In the traditional economic model, competition among rival firms derives profits to zero, but competition is not perfect and firms are not unsophisticated passive price takers. Rather firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms is measured by the industry concentration. The Concentration ratio indicates the percentage of market share. Porsche competes in a market segment where relatively few can compete. 10
  11. 11. Consumers who have a taste for exclusive premium brand like Porsche had many alternatives to choose from since companies like BMW, Nissan, an General Motors have each produced one or two cars comparable in price and performance to the Porsche line, but there offerings do not present the prestige or variety of Porsche’s emblem or full product line. The rivalry also depends on geographic location of the market. Porsche is present in all important world markets, but core markets are Europe, Japan and the US. One particular other market is China which has lower levels of rivalry compared to the US or Europe. By Virtue of hostile competition there are considerable number of rivals or models that consumers might consider when evaluating premium sport brands other than Porsche are; • Aston Martin V8 Vintage; • Audi R8; • BMW M6; • Jaguar XKR; • Lamborghini Gallardo and • Maserati Granturismo. The assessment of the rival’s shows that there is high rivalry in the entry/mid-level market, entering this market range looks risky. In the high-level segment less rivalry, as most opportunity and is more consistent with Porsche’s brand. The market is highly competitive and social trends play a crucial on the brand perception. 3.4 Buyer power Buyers have little transactional power. There is a significant increase as social Porsche trends when customers make purchasing high performance vehicles seem irresponsible, hence allowing buyers to repeat business is highly likely and demand more environmentally each transaction is highly profitable) responsible features. • Buyers face high switching costs, both price sensitivity is usually low (within factors, and hence the effect in 3 years a given range) and buyers are usually should be low (although it may affluent. compound further into the future). High substitutability is the only empowering factor for buyers, who otherwise have little power in the transaction. The Porsche brand is focused on wealthier people, upper-middle class and upper class. However, there is no significant bargaining power, since they are 11
  12. 12. too fragmented (but also have several options to choose from). Many specific high- end luxury models have waiting lists. 3.5 Supplier Bargaining Power In the relationship between the automotive industry and its suppliers, the power axis is substantially tipped in the industry’s favour. The automotive industry is composed of powerful buyers who are generally able to dictate terms to their suppliers. Although supplier products are vital to production, their transactional power over Porsche is usually low. A large number of suppliers exist and compete on a worldwide basis. Supplier products are not highly differentiated. Competition between suppliers is high as a contract with Porsche represents a significant opportunity. Switching costs between suppliers are low since many components are produced by their vehicle manufacturer themselves. In-dept- analysis of the labour markets shows that there is unionized European labour has bargaining power. Smaller input suppliers and sub-contractors have little bargaining power and are highly dependent on Porsche, well-working chain of suppliers in place. Porsche is not vertically integrated (typically 20% of production for sports cars and 10% for Cayenne). Large suppliers (such as VW), which provide core components, could have great power. This is particularly relevant if Porsche considers joint entry with another German manufacturer. Co-ownership of VW and Porsche reduces potential to exercise bargaining power. 3.6 Conclusion It will not be easy for Porsche to establish and sustain a good market position with the current production capabilities, rivalry levels, limited differentiation possibilities and established sedan brands (many of which also have a solid brand image such as Mercedes, BMW, Audi, VW, Maserati, Jaguar, Lexus, and others). The profit margins of the luxury sedan class cars are higher than that of lower- and middle- class sedans. This is more in-line with Porsche’s high-margin strategy and the only potential place Porsche could enter. 12
  13. 13. 4. In seeking to become the leading automotive group globally, VW has embarked on a strategy of national diversification; critically discuss VW’s choice of strategy. As the global automotive industry strives to achieve economies of scale and efficient product launches, major automotive manufacturers are increasingly focus on manufacturing a larger volume of passenger cars on select global platforms (core platforms). These core platforms will be used to design and produce vehicles across segments (by size and price range) and brands on a global scale. Emerging economies such as China and South Asia, and South America will continue to strongly influence car manufacturer’s strategies in the near future, affecting product development, marketing, and manufacturing strategies. Porsche has always expanded to international markets exclusively through exportation a less expensive option as compared to green field ventures or establishing new bases of operation. Inherent to multinational expansion are increasingly complex economic and political risks. Porsche's strategy hedges against such complexity by focusing solely of exportation rather than manufacturing expansion, acquisition and licensing. With the exception of its contract with Valmet in Austria for the Boxster/Cayman, Porsche produces all of its cars within its labour union dominated, Bavarian borders. Porsche’s core competences and brand image, and the premise of future growth strategies should be based on expansion/ penetration into new customer markets with their same product lines, instead of its current strategy of diversification where Porsche entered the SUV and four sedan markets. However, other automakers, such as VW and GM, employ a transnational strategy by modifying current models according to the demands in international regions. Volkswagen is the forerunner in implementing a modular strategy for platforms and uses common platforms for multiple brands as well as vehicles. For instance, Volkswagen and Porsche share a platform for the Volkswagen Touareg and the Porsche Cayenne Sports Utility Vehicles (SUV). The Volkswagen Group has a presence in all important automotive markets around the world. 13
  14. 14. It is the goal of the Group to offer attractive, safe and environmentally sound vehicles which are competitive and which set world standards in their respective classes. To meet regional customer demand, purchasing power and to minimize currency risk a clear focus on local production is adopted. Volkswagen is represented in each important region with at least one plant this allows the company to localise production and to offer model variations that answer the different needs of our regional customers from China to North America, India and Europe ( Fact book,2012:52). This has allowed for a vast national diversification initiative. Figure 1, shows the manufacturing plants for Volkswagen per region. Source: (Volkswagen Fact book, 2012:52) Figure one above shows the locations of manufacturing plants owned by Volkswagen in every region across the globe, this affirms the transitional strategy. Volkswagen prides in flexible engineering architecture allows it a cost effective production process which is achieved with the transfer of the toolkit principle to production. The set up of the factory allows for highly flexibility, thus it can produce a wide range of models and brands on the same production line. 14
  15. 15. Volkswagens strategy is fully transitional encompasses the expansion of brand and product portfolio, realisation of cost savings, development of high-end modular toolkit for luxury brands localisation of production to create sustainable value. In future Volkswagen should consider the use of Porsche’s distribution network for Volkswagen Group luxury brands. Volkswagen uses several common platforms across its brands and vehicle segments. The group will launch 10 new platforms by 2018. These new platforms will include MQB, MHB, MLB, and a sports car platform. To harness platform synergies, Volkswagen plans to produce majority of its new models for all its brands on these four platforms. The group’s strategy is focused on enhancing the utilization of mature platforms in the emerging markets such as China. National diversification strategy also allows for the Volkswagens to focus on the local needs that a state or region demands in terms of compliance to gas emissions, fuel efficiency, speed limits, it also consider customisation requests from its customers. 15
  16. 16. 5. It is increasingly accepted that companies can no longer act independently of the societies and the environment in which they operate” In seeking to attain competitive advantage at a global level, critically discuss the need for VW to focus on the “triple bottom line” and to establish itself as a good corporate citizen in all the countries in which it operates. The financial success has long been accepted as the primary objective of corporate existence. However, many social critics have questioned whether financial success is enough. There are increasing demands that companies be good corporate citizens as well. Organizations struggle to tell their stories, to communicate the good and sometimes the bad that they do in the marketplace, in the community, to and for the environment, and in society. Quite clearly, the challenge of telling the company’s story is not being met by current corporate reporting practices. Triple bottom-line (TBL) reporting, a term coined by John Elkington in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business, aims to remedy this shortcoming by explicitly considering not only the economic performance of a firm but also the company’s environmental and social performance as well. An increasingly popular practice is the issuance of a corporate responsibility or sustainability report. According to Elkington, 1999, Triple Bottom Line (TBL) reporting is a form of voluntary corporate reporting that melds the three aspects of economic, social and environmental performance into one report Volkswagen faces challenges to their responsible corporate citizenship that other companies in the automotive industry face. The primary issue is that of greenhouse gas emissions and how the cars and 16
  17. 17. trucks they manufacture contribute to climate change. One would therefore expect Volkswagen to set similar goals, follow aligned (Musikanski, 2008:03). Volkswagen have previously reported at the A level in their first two G3 reports. While VW disclosed information on 90% of the core performance indicators, there were discrepancies between which indicators are reported. In their first G3 reports, issued for 2007, VW reported on 70% common indicators (VW, 2008a). This improved to 82% in their second iterations for 2009 (VW, 2008b). This improvement should lead to greater comparability. However, even when a common goal is stated (e.g. reduction of CO2), the scale of the reduction is not comparable. Volkswagen does not set CO2 goals for its US or EU vehicles, but targets a 20% reduction in fuel use and CO2 emissions in China (Volkswagen, 2008a, p.74). Volkswagen (VW) is Europe’s number carmaker. With sales of over 6 million vehicles, revenues of €109 million, and after-tax earnings of €4.1 million in 2007 (Volkswagen, 2008a), VW has managed to weather the difficult times faced by the automotive industry and remain profitable. In contrast to its financial results, the company has experienced what it characterizes as “highlights and lowlights” in its perceived performance in terms of sustainability (Volkswagen, 2008a, pp. 76-77). In 2006, VW rebounded by receiving the 2006 European Business Award for its environmental performance and was named by J.D. Power as the top company in its class in the U.S. market for environmental friendliness. In 2007, VW was included in the FTSE4Good’s newly created Environmental Leaders Europe 40 Index. VW needs to be consistent in its triple bottom reporting to ensure comparability with other players operating in the same industry. VW needs to set clear and specific CO2 goals for the US and EU market because sustainability in the automobile industry is more than just producing fuel-efficient cars, but integrating value-driving sustainability concepts in the company’s business principles and strategy. VW needs to adopt sustainability practices through accounting for environmental, social and economic performance of its business operations. VW needs to adapt to various environmental laws and regulations of various countries in which it has markets to comply with the gas emissions. 17
  18. 18. Furthermore, VW needs to consider disclosing the following generic performance indicators 5.1 Environment Raw Materials Disclosure of the materials used by weight, volume and the percentage of materials that can be recycled input materials. Emissions, effluents and waste Disclosure total direct and indirect green house gas emissions that are ozone depleting. Other indirect greenhouse gas emissions by weight and initiatives in place to reduce greenhouse gas emissions and the reductions achieved. Compliance Disclosure of significant fines in monetary value and total number of non monetary sanctions regarding non compliance with environmental laws and regulations. 5.2 Product responsibility Products and services Initiatives to mitigate environmental impacts of products and services and extent of mitigation. Compliance Monetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services. Customer privacy Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. Marketing Communications 18
  19. 19. Programs for adherence to laws ,standards and voluntary code related to marketing communications, including advertising, promotion and sponsorship. Total number of non compliance cases with regulations and voluntary codes concerning marketing communications including advertising, promotion and sponsorship by type of outcomes. 5.3 Society Community Disclosure of the nature ,scope and effectiveness of any programs and practices that access and manage the impacts of operations on communities including entering, operating and exiting. Corruption Percentage and total number of business units analyzed for risks related to corruption. Percentage of employees trained in organizations anti corruption policies and procedure. The actions taken in response to incidents of corruption. Public Policy Public policy positions and participation in public policy development and lobbying. The total value of financial and in kind contributions to political parties, politicians and related institutions by country. Anti Competitive Behavior Total number of legal actions for anti competitive behavior, antitrust and monopoly practices and their outcome 5.4 Human Rights Investment and procurement policies 19
  20. 20. Percentage and total number of significant investment agreements that include human rights clauses or that have under gone human rights screening. Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken. Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations. Non- discrimination Total number of incidents of discrimination and actions taken. Child labor Operations identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor. 5.5 Labor practices & decent work Employment Total workforce by employment type, employment contract and resignation Total number and rate of employee turnover by age group, gender and region. Benefits provided to full time employees that are not provided to temporary or part time employees by major operations Training and Education Average hours of training per year by employee category. Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings Percentage of employees receiving regular performance and career development reviews. Diversity and equal opportunity Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership and other indicators of diversity. Gender balance ration of basic salary of men to women by employee category. 20
  21. 21. The notion that business does not operate in a vacuum applies to VW. The decision to publish a TBL report should be driven primarily by the strategic direction of the company and the need for competitive advantage from being transparent in reporting TBL performance indicators. Management of these core factors is a core element of overall enterprise strategy. In order for VW’s TBL reporting to drive maximum value it is essential that the information reported aligns with business strategy, objectives and accurately reflects the focus of company activity in these particular areas. This serves to reinforce the importance of companies developing indicators in a structured way that reflects their objectives and the requirements of key stakeholder groups. Finally, VW should ensure that verification of the TBL is done to provide assurance about the reliability and integrity of the reporting process and to enhance credibility of the report. 21
  22. 22. 5.6 Bibliography 1. Bret Okeson, “Engineering is Porsche’s Secret Weapon,” Automotive News, January 15, 2001. 2. Chelsey DeBalsi, Porsche: The Cayenne Launch, Cayenne Case Study, 6 October 2011 3. Jeremy Cato, “Porsche Revs Up for Explosive Growth,” The Globe and Mail, February 22, 2007. 4. Ray Hutton, “Porsche Set to Take the Wheel at VW,” The Sunday Times, October 14, 2007 5. Rizwan. Habib, Joy. Huffman, Derek. Mitchell & Cynthia Rayess, Strategic market analysis of Porsche, Atlanta Module Spring 2012. 6. Stuart F. Brown, “New Products From Rented Brains,” Fortune, September 4, 2000 7. Volkswagen (2008a). Annual report 2007, accessed March 24, 2013, [available at http://www.volkswagenag.com/vwag/vwcorp/info_center/en/publications/2008/03/ Annual_Report_2007.-bin.acq/qual- BinaryStorageItem.Single.File/VW_AG_GB_2007_en.pdf]. 8. Volkswagen (2008b). Sustainability Report 2007/2008: We are moving into the future responsibly, accessed March 19, 2013, [available at http://www.volkswagenag.com/vwag/vwcorp/info_center/en/publications/2007/09/ 22
  23. 23. sustainability_report.-bin.acq/qual- BinaryStorageItem.Single.File/sustainability_report_07-08_engl.pdf]. 9. (Michael Porter) http://www.valuebasedmanagement.net/methods_porter_five_forces.html; accessed March 24, 2013 10.Laura Musikanski, 2008 Triple Bottom Line Reporting 23

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