Must be business related and must be current - Term Paper Example

 1. Background information on Volkswagen AG The car industry plays a pivotal role in the German economy. It has been the centre of discussion on the so-called “German model” both concerning it's strengths and shortcomings. It is a major employer and provides a large proportion of the higher-paid and traditionally secure work positions. The car industry is the most important seat of power for Germany’s leading union, IG Metall, and at the centre of the increasing entrenchment of Germany’s codetermination. In terms of innovation the industry bears robust statistics. In contrast to the overall trend in Germany, the sector has increased spending on research and development by 66% since 1990. In 1997 it spent DM 14.7 billion on R&D, 24% of the total business sector R&D expenditure in Germany that year. In 1995 50,000 employees were engaged in R&D, 6% more than in 1991. The impact is clear in patent statistics. The automotive industry registered 1,892 patents in 1990, 2,940 in 1996 (out of a total of 9,342 patents registered world-wide). Thus 31% per cent of patents registered in 1995 were German, compared to 25% Japanese and 19% US-American; German patents. The uniqueness of Volkswagen's governance is based on a bespoke law named the “VW Act” enacted in 1960 when Volkswagen was privatised, and a corresponding company statute. This legislation includes, among other directives, a required two-third majority on the supervisory board for any decisions on new plants or plant relocation thus ensuring that the government and labour representatives could not be overruled in decisions concerning changes of location and employment security. This has led to consistency in providing a solid basis for continued innovation. In the late 90s VW moved upmarket with its purchase of Audi but also retained the lower end of the market with it’s purchase of Skoda. Recently, VW has addressed it’s continued losses in the USA with the planned opening of a US assembly line in Tennessee, focused on production of sedan models. The future options for VW would seem to rest on the US market where consumers are becoming increasingly conscious of clean technology. For this reason, VW will increasingly focus on neat ethanol, flexible-fuel and electric vehicles. 2. The business situation involved: innovation at VW AG According to sources at VW, the main advantages of electronic communication is the reduction of adminstrative work, the acceleration of processes, improved planning accuracy and improved transparency in the collaboration with its suppliers. The development of this B2B supplier procurement platform has produced remarkable savings for both VW and suppliers over the past 5 years. Reference to statistics at VWGroupSupply in the Annual Report show that, as well as the doubling of suppliers using the platform over the past 4 years, VW now handles all of its contracts through this system generating transactions up to $56 million resulting in a saving of up to $70 million on the legacy direct procurement methods. Lee, S (2003) carried out a comparative study of leadership in innovation within the automotive B2B sector and rates VW as the leader in this field with Opel, BMW and Daimler following in order. The type of innovation characterised by VW’s B2B supplier platform is essentially that of process integration rather than product innovation per se. The advantage for VW, beyond the savings already mentioned, is the ability to accelerate the time to market for new models. This is partly facilitated by the fact that component orders that would have previously taken up to a month to process are now executable within a few days with a comcomitant shedding of bureaucracy. In terms of future stability of this platform, firms would seem to be so well-integrated into the system that they could not operate their procurement without it. The drivers behind this innovation are both diseconomies of scale created when VW diversified their global production to include the USA in the mid-70s. This was compounded by the acquisition of SEAT et al from the early 90s onwards. With each successive acquisition came a new portfolio of suppliers with disparate means of procurement. 3. Experts' View: the key innovation in VW AG There is a general consensus among experts that innovative organisations are engineered to maximise the exploitation of new ideas. Beecham, J (2009) argues that many of the firms with above average sales growth and profitability have a distinct innovation strategy which is often characterised by a target of; “30% or more of sales from new products/service introductions made in the past three to five years” . Nonaka and Takeuchi (1997) elaborate the underlying characteristics which an organisation should possess to foster successful innovation and define these as “Challenges”, “Commitment”, “Decision process”, “Knowledge Conversion” and “Orientation to the Environment”. The idea of challenge suggests that an innovative organisation encourages employees to commit to challenges as a developmental goal. Commitment, which Miguel, Franklin and Popadiuk (2008) define as a key enabler to innovation, is how successful the organisation is in communicating organisational goals to employees. The decision process element is key in an innovative organisation and can be seen as a value-creation chain as it adds value to original ideas as it progresses through the organisation. Knowledge conversion, the fourth of Nonaka and Takeuchi’s 5 factors, has gained the most study in recent literature with Beecham, J (2009) recognising the social, person-to-person conversion “tacit” process. The very fact that this knowledge is not available to others adds to the firm’s competitive advantage. Finally, the firm’s orientation to the external environment, essentially a recapitulation of organisational theories of cybernetics, is identified as a second key enabler of innovation with the innovative organisation reflecting the “dynamism of the external environment in the same proportion”, Miguel, Franklin and Popadiuk (2008). The latter innovation factor on environmental orientation is applied more strictly to the technology sector by Almirall, E and Casadenus-Masanell, R (2009) who identify two models, of closed and open innovation. In their definition, firms which employ closed innovation will typically make all the choices regarding product development while those which employ an open approach will typically share their technology and integrate elements developed by competitors or other organisations. 4. My Opinion: How I would contribute to the future of VW The purpose behind focussing my involvement in Volkswagen USA is simply that the key research facilities (VAIL in Palo Alto) as well as a production in Tennessee, give a unique opportunity to integrate research, innovation and production more effectively. Currently, the VAIL facility produces research and testing on new products which are developed from the ideas generated from a disparate group of scientists, research fellows and specialists invited by VW to join them at the Stanford Campus. These are no necessarily employees of VW Group, and in this respect this innovation is open. Knowledge and data produced feeds into new VW models and modifications. My first task here would be to investigate how VW could align the virtual brand communities, such as the Audi Virtual Lab as an integrated input to to the innovation process. The gap here, as I see it, is that the VAIL facility focuses on performance, handling, braking and other mechanical aspects of the vehicles. However, we assume that brand conscious consumers have high expectations for infotainment systems, car livery, and user features as much as handling etc. These two crucial areas of research need to be brought together in a complementary fashion as an integrated innovation platform. This fusion of explicit (VAIL) and tacit (Virtual Lab) knowledge should result in an earlier specification for suppliers to have access to. This would expidite costings for new components and models. In parallel to the above, I would also very likely focus on aligning decision-making processes with the innovation-supply chain. Ultimately, to get better models, more responsive to customer needs, to the market rapidly, VW would need a radical decentralisation of investment decision-making to functional heads along the innovation-supply chain. The aim of this would be to position innovation as the main driver of investment as opposed to the tendency of investment decisions being financed from the supervisory board. It is clear that VW is moving increasingly in the direction of tapping online communities and networks for tacit knowledge as a means of ramping up innovation, however this does not fully carry through to financing as these decision are currently over-centralised. References Alminall, R and Masenell, M, Open and Closed Innovation, Journal of the Academy of Business and Economics 2008 Beecham, J,. Innovation: Turning Ideas Into Profit, Chemistry and Industry, 13/07 2009 Choo, C and Johnston, R, Innovation in the Knowing Organisation, The Journal of Knowledge Management, 8:6 2004 Dietl, H, Royer, S and Strattman, H. Value Creation Architecture, California Management Review 2004 Fuller, J, Matzler, K and Hoppe, M. Brand Community Members as a Source of Innovation, Journal of Product Innovation and Management, 8;4 2008 Lee, S, Report on B2B Technologies in the German Automotive Industry, Australian German Association 2003 Miguel, L, Franklin, M and Popadiuk, S,. Knowledge Creation with a View to Innovation as a Dynamic Capability in Competitive Firms, Journal of the Academy of Business and Economics, 8:4 2008 Nonaka, I and Takeuchi, H, The Knowledge Creating Company, Oxford University Press, Oxford, 1999 Read More