Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard Custom Case Solution & Analysis

1. Evidence Brief

Financial Metrics

Operational Facts

• Manufacturing Footprint: Five major production plants located in Brazil.
• Headcount: 22000 total employees during the 2006 crisis period.
• Product Portfolio: Heavily reliant on the Gol model and the Fox export program.
• Geographic Scope: Primary focus on the Brazilian domestic market with significant exports to North America and Europe.
• Labor Environment: High unionization rates, specifically within the ABC industrial region of Sao Paulo.

Stakeholder Positions

• Thomas Schmall (CEO): Advocated for a complete cultural and operational overhaul using structured management frameworks.
• Carsten Isensee (CFO): Prioritized fiscal discipline and the achievement of the 1 billion dollar profit turnaround.
• Labor Unions: Initially resistant to headcount reductions and changes in work rules; demanded job security.
• Volkswagen AG (Parent Company): Demanded that the Brazilian subsidiary become self-sustaining or face divestment.

Information Gaps

• Granular marketing spend per vehicle model compared to Fiat and GM.
• Specific R and D investment levels for flex-fuel technology compared to local competitors.
• Detailed breakdown of non-labor fixed costs across the five manufacturing sites.

2. Strategic Analysis

Core Strategic Question

• How can Volkswagen do Brasil reverse a 1.2 billion dollar loss and regain market leadership in a fragmented, price-sensitive market?
• Can a manufacturing-centric culture transition to a customer-focused strategy using the Balanced Scorecard?

Structural Analysis

Porter Five Forces Findings: Competitive rivalry is extreme due to overcapacity in the Brazilian automotive sector. Buyer power is high as consumers have shifted from brand loyalty to price and feature sensitivity. Supplier power is significant due to localized supply chain requirements. The threat of new entrants is moderate but rising with Chinese manufacturers entering the South American market.

Value Chain Analysis: The primary bottleneck is the disconnect between manufacturing output and market demand. VWB historically pushed products to dealers rather than pulling based on consumer preference. Internal logistics and labor relations represent the highest friction points in the cost structure.

Strategic Options

• Option 1: Aggressive Cost Leadership. Focus exclusively on the low-cost segment by stripping features and maximizing economies of scale on the Gol platform. Trade-off: Erodes brand equity and ignores the growing middle-class demand for premium features.
• Option 2: Portfolio Diversification. Rapidly introduce global platforms to Brazil to compete in the SUV and premium sedan segments. Trade-off: Requires massive capital expenditure that the subsidiary cannot currently fund.
• Option 3: Strategic Alignment via Balanced Scorecard (Preferred). Implement a Strategy Map to align all 22000 employees with four perspectives: Financial, Customer, Internal Processes, and Learning and Growth. Resource Requirements: Significant management time, new IT reporting systems, and a revised incentive structure.

Preliminary Recommendation

VWB must adopt Option 3. The crisis is not just financial but organizational. Without a shared language of success, departmental silos will continue to protect their own interests at the expense of the total bottom line. The Balanced Scorecard provides the necessary framework to translate high-level goals into plant-level actions.

3. Implementation Roadmap

Critical Path

• Month 1-2: Finalize the VWB 2010 Strategy Map with the top 150 executives.
• Month 3-4: Cascade the high-level scorecard to the five manufacturing plants and functional departments.
• Month 5-6: Link executive and management bonuses to specific scorecard themes such as quality and cost per unit.
• Month 7-12: Establish monthly Strategy Management System meetings to review performance and adjust tactics.

Key Constraints

• Labor Relations: The ABC region unions may view performance metrics as a tool for further layoffs.
• Middle Management Inertia: Managers accustomed to the old command-and-control style may pay lip service to the scorecard while maintaining old habits.
• Data Integrity: The implementation success depends on real-time, accurate reporting from the shop floor.

Risk-Adjusted Implementation Strategy

To mitigate resistance, VWB should launch a massive internal communication campaign titled The New Volkswagen. This involves town halls led by Schmall to explain the link between scorecard success and job security. Contingency plans include a phased rollout starting with the most profitable plant to demonstrate quick wins before tackling the more troubled facilities.

4. Executive Review and BLUF

BLUF

Volkswagen do Brasil must execute the VWB 2010 strategy using the Balanced Scorecard to survive. The 1.2 billion dollar loss in 2006 proves the previous manufacturing-push model is dead. Success requires moving from a culture of volume to a culture of value. The Scorecard is the only mechanism available to align 22000 employees across five plants toward a single 1 billion dollar profit target. Failure to achieve this alignment will result in the parent company withdrawing support for the Brazilian market.

Dangerous Assumption

The most consequential unchallenged premise is that the Brazilian labor unions will accept a performance-linked culture. If the unions perceive the Balanced Scorecard as a surveillance tool rather than a growth tool, industrial action could paralyze the turnaround before the first new model reaches the market.

Unaddressed Risks

• Currency Volatility: The plan assumes a stable Brazilian Real. A sudden devaluation would spike the cost of imported components, rendering the 1 billion dollar profit target impossible regardless of operational efficiency.
• Competitor Agility: While VWB focuses on internal alignment, rivals like Fiat and GM may initiate a price war that erodes the margins the Balanced Scorecard is designed to protect.

Unconsidered Alternative

The team did not fully evaluate a radical contraction strategy. Closing two of the five plants and exiting the low-margin fleet market would immediately reduce the breakeven point. While this would be politically difficult in Brazil, it offers a faster path to profitability than a total cultural transformation of 22000 people.

MECE Verdict

APPROVED FOR LEADERSHIP REVIEW