Discuss about the Business Analysis Case Study.
Volkswagen (VW) is an automobile manufacturing company headquartered in Germany. The company was established in the year 1937 and presently is a leading automobile manufacturer. The scandal of VW is regarding the use of software for cheating the standards of emission in its diesel automobiles. For this reason, the scandal has been named as ‘diesel dupe’. EPA (Environmental Protection Agency) in the US investigated that a software or defeat device has been installed in the diesel engines that could change the performance for improving the results accordingly (Goel 2015). VW had a boost in sales in US based on its great marketing campaign on the low emission of its cars and it was a total fraud. In response to the scandal, VW admitted to the scandal for cheating the tests for emission in the US and the CEO replied that the trust of the public and customers have been damaged because of the scandal (Barrett et al. 2015). They look forward to winning back the trust by putting every effort, as reputation and customer satisfaction are the most important factor from the business point of view.
There has been a historical quote in context to management that states that ‘Competition brings out the best in products and the worst in man.’ This quote is perfectly justified in this case as it created a situation of the dilemma while critically analyzing the scandal. Competition creates the urge to deliver good products to the customer without harming the morals and ethics. The competition provides an opportunity to the consumers to have the products and services at an affordable rate that is high in quality as well by creating choices for them (Rhodes 2016). In the absence of threat, there will be no desire for greater efforts of better delivery of products. Therefore, in the increasing market for the automobile manufacturers, VW tried to improve the quality of its cars as well as provide the customers with an affordable and reasonable price to conquer the market and win over its customers, thus regaining its position of being a reputed automobile brand.
However, the second part of the quote is what that made VW adopt unethical ways of manufacturing, as the worst was out to sustain the competition. Since VW tried to emerge out of the tough competition in the US, it went for immoral ways of manufacturing cars that showed biased results for its emission standards. This caused the customers to trust on its standards, but when the scandal was surfaced, VW lost its reputation and the trust of its customers too (Zhou 2016). Therefore, the quote was appropriately applied on the scandal that VW was in as it balanced both the results of the competition of best in product and worst in man. Sometimes, although undesirable, the competitor tends to damage itself in order to rise above the others. This is a form of vigorous competition that damaged the competitor itself. Therefore, business management should not reach such a vigorous state where it starts destroying itself.
Volkswagen cheating on emission standards resolutely destroys the myth that they value their shareholders. The goal of a company is to increase the shareholder value is a common financial myth (Stout 2013). The myth states that the investors focus exclusively on the stock prices and do not care about the societal impacts. VW proved this myth to be true by installing defeat software for manipulating the emission tests. The judgment of the shareholders was evident from the market reaction when the share prices markedly dropped to one third of its original and wiped billions from the net value of VW. Therefore, it was clear that unethical behavior of VW destroyed the myth that they value their shareholders and their values. This scandal resulted because of the fact that VW was after short-term rewards of gaining market values and rising over the competition (Martin 2010).
Three concepts define the scandal of VW and they have been discussed below.
The prime cause of the scandal was the pursuit of profits and after the scandal was exposed, VW gave a detailed explanation of the damage. They said that a collection of several failures resulted in the scandal rather than the misconduct of the rogue engineers. Apart from misconduct, rule breaking tolerance and process failure was the associated causes of the scandal. The company ignored all these, as they were only concerned about profit making while the internal discipline was rouged. It was also stated by the company that they realized that they could never meet the targets of emission of permissible means in the United States. Therefore, they decided to install the defeat devices in the engines after this realization, by the company (Blackwelder et al. 2016). It was the overall responsibility of the company to maintain the ethical conduct of the business rather than an individual responsibility. It was a chain of errors because of rule breaking tolerance.
The catalyst of the acts of VW was due to their imagined order of the management philosophy that pushed the religion of diesel. Diesel cars are in demand in the US because of the huge campaigns by the company that resulted in an increased demand for diesel cars in the US. However, diesel emission has been a major concern of air pollution and its emission control is an essential factor for environmental reasons. There are strict laws and regulations of diesel emission in the US, which was quite difficult for the company to manage by maintaining its profit (Krall, Jenna and Roger 2015). Therefore, to meet the increasing demand for diesel cars, VW started to manipulate the diesel emission as the management philosophy had pushed the religion of diesel for capturing the diesel segment of the car market in the US. Diesel vehicles also have the tendency to emit carbon footprints that are smaller than their petrol counterparts are and have been considered effective in the mitigation of global warming. Diesel cars can keep the emission within limits without any breach of law but it will add up to the subsequent investment and research costs for the makers of cars. Avoiding such huge costs was the catalyst for the VW scandal with cheaper yet unethical alternatives.
The VW scandal resulted in agent costs on behalf of the principals. Agent costs are the internal costs that emerge out of an agent acting for the principal. Conflicts of interests between the management and the shareholders and other internal problems give rise to the agency costs. While the shareholders wish to let the company operate according to their wish to increase their value, the management actually runs the company for increasing their personal values, ignoring the values of the shareholders (Zhang et al. 2016). This was the effect of the scandal where there was a conflict between the management and the shareholders.
It is a fact that innovation is vital for success and it is quite difficult to define. Innovation and invention are not the same things and innovation leads to improvement. From the case of VW scandal, it was clear that the deficit software designed by VW was definitely an invention but not an innovation. The invention helped VW to adopt fraudulent means to clear the emission tests but apparently, destroyed the environment. Therefore, the innovation of the software was certainly not an innovation but rather a destroying invention.
The scandal had profound impacts on VW. Apart from reputational damage and financial loss, the damage had a much bigger effect on the automobile industry as a whole. The consequences were far reaching with legal fines, customer and investor backlash, criminal investigation, action suits and future damage on sales (Tuttle 2015). Apart from these, other German automakers that use diesel engines are also affected along with an extended effect on the entire automobile industry. The respect and trust of German engineering were hampered along with the economic growth of the country.
References
Barrett, Steven RH, Raymond L. Speth, Sebastian D. Eastham, Irene C. Dedoussi, Akshay Ashok, Robert Malina, and David W. Keith. “Impact of the Volkswagen emissions control defeat device on US public health.”Environmental Research Letters 10, no. 11 (2015): 114005.
Blackwelder, Britt, Katerine Coleman, Sara Colunga-Santoyo, Jeffrey S. Harrison, and Danielle Wozniak. “The Volkswagen Scandal.” (2016).
Goel, Anusha. “Volkswagen: The Protagonist in Diesel Emission Scandal.”South Asian Journal of Marketing & Management Research, Forthcoming (2015).
Krall, Jenna R., and Roger D. Peng. “The Volkswagen scandal: Deception, driving and deaths.” Significance 12, no. 6 (2015): 12-15.
Martin, Roger. “The age of customer capitalism.” Harvard business review88, no. 1 (2010).
Rhodes, Carl. “Democratic Business Ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty.” Organization Studies (2016): 0170840616641984.
Stout, Lynn A. “The shareholder value myth.” European Financial Review, April-May (2013).
Tuttle, Hilary. “Volkswagen Rocked by Emissions Fraud Scandal.” Risk Management 62, no. 10 (2015): 4.
Zhang, Boyang, Jari Veijalainen, and Denis Kotkov. “Volkswagen Emission Crisis: Managing Stakeholder Relations on the Web.” In WEBIST 2016: Proceedings of the 12th International conference on web information systems and technologies. Volume 1, ISBN 978-989-758-186-1. SCITEPRESS, 2016.
Zhou, Angie. “Analysis of the Volkswagen Scandal Possible Solutions for Recovery.” (2016).
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