Volkswagen Scandal: Organizational Behavior And Response Essay.

Background

Locally, nationally and internationally, there are many organisations whose success or failure has been determined at least in part by key organisational behaviour and people factors. Success may not necessarily mean financial performance – it may mean that the organisation has effectively managed a “turnaround” of some sort (for example, a major change to ‘go green’ following an environmental incident or to improve diversity following being labelled a biased or discriminatory employer. Failure may not mean financial disaster – it may mean a loss of trust with stakeholders, the presence of unethical behaviour or a damaging culture, or the loss of key talent (employees) to competitors. There have been many examples in the media over the last five years. For example, culture, leadership, and motivation and reward systems were antecedents to Enron’s failure, which had severe consequences for its stakeholders.

Choose a real case of an organisation successfully (or less than successfully) dealing with a problem that has damaged the organisation in some way. Describe briefly what happened, the context, and the consequences of the success or failure for the organisation's stakeholders. Note you should not select an organisation which is simply considered successful; the organisation must have faced a problem or failure.

Analyse the organisational behaviour factors that contributed to the problem. These may be individual, group or organisational level factors. Your analysis should include a relevant analytical framework (e.g. SWOT, PESTEL or stakeholder analysis).

Describe what the organisation did to achieve success or post-failure to address the problem and or prevent a reoccurrence of the problem. Evaluate the effectiveness of the organisation’s action or response to the failure, and make recommendations for what could have been done better. In making these recommendations, be pragmatic and specific (i.e. make recommendations that are viable and within the organisation’s capacity to implement).

Apply relevant models, concepts, theories and literature in the field of organisational behaviour. You are expected to incorporate relevant research and theory from the broader organisational behaviour literature (e.g., journal articles and/or books), not just the text and course materials (in addition to 'other' sources, your reference list should include a minimum of ten journal articles);

Conduct desk research to obtain information and/or data and examples to illustrate and support your analysis, evaluation and recommendations (e.g. media reports, interviews, independent investigation reports, organisational reports, etc.).

The organisational problem must have occurred in the last 10 years.

It is recommended that you choose a case where the failure was of considerable magnitude or the organisation successfully dealt with a significant problem. That is, the failure caused some kind of harm to one or more of the organisation’s stakeholders (e.g. employees, customers, shareholders, suppliers, the community, the organisation’s board, etc.).

You may not analyse any case that has been discussed in class, nor may you derive your analysis from any existing case study.

Beyond these requirements, the choice of case is at your discretion. Students are expected to select a case they are familiar with (e.g., from personal experience, or through their network). Note: all 'personal' case information will be treated as private and confidential. If you undertake primary research within an organisation or use material that is not publicly available you need to contact your lecturer or course coordinator for instructions on how to adhere to the UQ Business School’s ethical guidelines for data collection.

The institution that will be used in this case is Volkswagen. Volkswagen is a car manufacturing company that is located in Germany. The company has its headquarters in Wolfsburg, and it was founded in 1937 (Haidt, Graham, & Ditto, 2015). Even though the company has its operations in Germany, it has penetrated the global market, and it is doing well in the automobile industry. Volkswagen still stands as one of the major automobile manufacturers all over the world. The company has been able to be successful because of the products that it manufactures and also because it is doing well in adopting the modern technology while manufacturing its products. Volkswagen is one of the companies that are working hard towards making sure that they meet the needs of the customers who use electric cars. The profits of the company have been increasing, and this is a sign that the company is headed in the right direction.

Volkswagen was involved in a scandal that almost led to its demise (Ewing, 2017). The company has leadership in place that has worked for many years and has seen it reach different levels of success. However, in 2015, the leadership of Volkswagen failed the company by far. The reason behind t is because the leaders opted to use a shortcut to make huge profits. The manufacturing team had already identified a method that could help in cheating on the emission levels of the car. The cheating methods would come to violate the environmental laws in the United States.  The regulation that was violated in this case was the regulation of taking care of the environment (Brown & Chandrasekaran, 2014). Due to global warming and other issues related to the changing of the environment, different nations have opted to adopt regulations that are essential in protecting the environment. The cars manufactured by Volkswagen proved to have the excess release of emissions into the atmosphere. However, the exciting part came when the car was out of the test (Ewing, 2017). The software that was installed in the car was of high technology. The reason behind it is because it could detect when the car is being tested for carbon emission and when it was being driven.

When the software detected that the car was going through the process of testing, the software tampered with the rate of emissions and that hindered the persons testing the emission of the car from knowing the exact amount of emissions being released to the atmosphere. However, this could not go undetected for a long time (Blackwelder, Coleman, Colunga-Santoyo, Harrison, & Wozniak, 2016). The scandal affected the profits and reputation of the company. The trust that the customers had on the products of Volkswagen declined drastically. At the same time, the assets and the finances of the company were affected, and this is because the company had to pay substantial court fines (Blackwelder, Coleman, Colunga-Santoyo, Harrison, & Wozniak, 2016). After the unveiling of the scandal, the company had to take responsibility, and this came with a dire consequence. The company had no choice but to take back most of the cars that it had already sold to the customers. It, therefore, meant that the costs associated with the cheating would come back to haunt the company in future.

Organizational factors contributing to the problem

The politics of any nation cannot be separated from the operations of the specific country. Many nations are influenced by their political leaders and the political decisions that they make end up affecting businesses. The rivalry between two nations due to political tensions is likely to affect the business of Volkswagen (Blackwelder et al. 2016). A good example can be seen in the rivalry between Germany and Turkey. The political tensions can reduce the demand for Volkswagen cars in Turkey significantly. At the same time, there are political decisions that are made in a nation, and they have an effect on the business of a company. The decisions include agreements within countries. Some countries agree to engage in business using different terms such as free imports and so forth. The political decisions affect the products that reach the country, and that means that if Germany is among the nations in agreements, Volkswagen gets to enjoy the political terms within the nations involved. 

The economy of any given country has an effect on the business in the specific nation. Some of the economic impacts that are likely to affect Volkswagen are low purchasing powers and fluctuating currencies. The customers of a country comprise most of the citizens. The citizens must have a high level of financing power if the businesses are to benefit (De Montjoye, Stopczynski, Shmueli, Pentland, & Lehmann, S. 2014). It, therefore, means that the citizens must have a reliable source of finance and that means stable employment opportunities. When there are no reliable employment opportunities, the customers lack the purchasing power that is needed, and that means that Volkswagen would not make sales as it would like to. Volkswagen is a company that sells its products to different customers all over the world. Therefore, it means that the weakness of a specific currency would affect the business (Cromwell, Amabile, & Harvey, 2018). For example, if the company was selling its cars in India and the currency of India happened to be weak against the dollar, it means that the price would need to increase. The aspect of raising the prices comes with effects on the company because the customers might hesitate to shift to the new prices. 

The social perspective is associated with how the members of the community socially interact. Social interactions have effects on the consumption behavior of the customers, and this is because the members of the society have the ability to influence each other. When the members of the society adopt a behavior of using a specific type of car, they pass the communication to each member of the society (Felin & Zenger, 2014). In this respect, if the model that they have decided to use belongs to Volkswagen, Volkswagen stands to gain because the sales of the company significantly increase. However, if the model belongs to a different company, the company is on the receiving end, and it is likely to be affected negatively. Tastes and preferences play a significant role in the sales of any given product (Gould, 2016). When the tastes and preferences of the population shift from one point to another, the products are affected either positively or negatively. The new social trend that is taken by the population affects the purchasing patterns of the customers. Therefore, if the new social trend embraces the use of Volkswagen products, the company benefits.

Volkswagen's response to the scandal

Technology is advancing at an alarming rate, and this has seen organizations that cannot keep up with the pace remain behind. Technology can affect the products of a company positively or negatively (Long, 2018). The use of technology can help an organization manufacture products that are in line with the needs of the customers in the industry. Advanced technology at Volkswagen is likely to help the company manufacture products that are updated thus meeting the needs of the customers. However, when it gets to the point where the industry manufacturers products that surpass the quality of the company, the company is likely to suffer, and this is because the level of competition is raised for the company (Neubert, Mainert, Kretzschmar, & Greiff, 2015). In the case of Volkswagen, if the competitors in other nations employ advanced technology in the process of manufacturing their goods, Volkswagen is likely to suffer because the customers are likely to go for the products that are updated as far as the technological aspect is concerned.

Legal issues include the laws that are in place and the impacts they have on business. Different nations have different laws that govern their business activities. A good example is seen in the case of the United States. The emission scandal was noticed in the United States, and this is because the emission percentage went against the acceptable carbon emissions in the country. Some laws may include the amount that a foreign company is supposed to pay to invest in the specific nation (Stephens, Chen, & Butler, 2016). When the law requires a foreign organization to part with a significant amount of money to invest in the country, the company is affected because it has to go an extra mile to meet the legal requirement. In the process of trying to fulfill the legal requirement, the company might spend more than it had planned and that means that the cost might be shifted to the product. Shifting the extra costs to the products makes the products expensive, and that might affect the sales negatively thus adversely hurting the business.

In the modern world, the environmental factors have a significant effect on different companies. Different nations have established laws that are supposed to protect the environment. The Volkswagen scandal is an excellent example in this case because the company was taken to court for violating some of the environmental laws (Stebbins, 2017). When the company violates the laws of a specific nation, it is at the danger of facing hefty fines, and that affects it financially and also affects its population (Frensch & Funke, 2014). Apart from the aspect of hefty fines, there is the aspect of restriction. Some environmental laws might restrict a company from investing in a specific nation which is not healthy for the company. When such a decision is made, an organization suffers because its areas of investing are limited.

Evaluation of Volkswagen's response

In line with the PESTLE Analysis, the case of Volkswagen scandal was affected by legal, environmental, and social factors. The emission of excess carbon to the atmosphere violated the environmental laws of the United States. The United States has a certain percentage of carbon that an organization should not surpass and unfortunately, Volkswagen surpassed the limit (Siano, Vollero, Conte, & Amabile, S. 2017). The legal perspective came in place when the company violated the consumer protection act by cheating on carbon emission. The consumers in the United States are protected from the organizations that might take advantage of them. An organization is supposed, to be honest while marketing its products. During the launch of the car that was involved in the scandal, the company lied about the emissions percentage and installed the cars with the software that could help to back up the narrative (Ahern, Leavy, & Byrne, 2014). The social aspect came to affect the company after the discovery of cheating. The customers influenced each other on not to buy the products of Volkswagen, and this is because the company had engaged itself in unethical dealings.

The organizational behavior factors that led to the failure were environment and technology. From the perspective of the environment, the company was challenged more than ever. The world has been shifting towards green energy, and that means that organizations that have not taken the same trend are facing pressure to do so (Willmott, 2016). The reason why Volkswagen lied about the emissions was to demonstrate that it could also produce environmentally friendly cars like other organizations in the industry. Therefore, in this respect, the business environment played a significant role in pressuring the company to be on the same page with the rest of the organizations in the industry (Thompson, 2017). The technology was a factor that led to the failure because it provided a platform where the organization could cheat. The software that was installed in the cars made it easier for the car to manipulate the carbon emissions. One critical aspect of the technology was that it could detect when the car was being tested for carbon emission and manipulate the emissions. Without the technology that was in place, it would have been difficult for the company to manipulate the emissions.

What the organization did to address the problem

Volkswagen took two significant steps that helped it to deal with the issue. The first step was to fire the CEO. Even though the CEO claimed that he did not know about what was happening, it is evident that there was no way that the manufacturing team could engage in such a heinous act without the consent of one of the top management staff (Van Aken & Berends, 2018). Sucking the CEO was an indication that the company was responsible and it was not willing to continue working with a person who was ready to take advantage of the innocent customers. When an organization is faced with a challenge, the best way is to assume the responsibility. Assuming the responsibility can be through the admission of the wrongdoing or through sacking the people who were involved in the wrongdoing. 

Recommendations for future action

The second step was recalling the car models that were affected. The scandal affected the customers, and it was, therefore, essential to come up with ways of making sure that the customers were compensated. The models that were already in the market were recalled, and the company had two options for the customers (Argyris, 2017). The customers had the choice of asking for a refund or a substitute product. The move was a symbol of regret and concern for the customers. The customers had already parted with their money, and that meant that there needed to be a strategy that made sure that the customers were compensated. 

The effectiveness of the organization’s response

The response of the company to the issue proved to work by a significant percentage. The reason behind it is associated with the aftermath of the scandal. It would be expected that Volkswagen would have suffered for a more extended period and this was due to the magnitude of the scandal. However, two years later, the company came out strong and recorded the most significant profit in its history (Rahim, 2017). At the same time, the company announced its venture in electric cars where it plans to partner with Chinese organizations. The success of a strategy is seen in the results of its actions, and as far as the current condition of Volkswagen is concerned, the response helped the company to move on. 

The company took longer to respond to the issue, and at sometimes, it gave contradicting reports. In this respect, the company would have dealt with the issue as seen as it reached the public. Coming out clearly and accepting blame is essential for the image of a company. At the same time, the chain of command that was involved in the scandal ought to have been fired. The ethics of a company should be upheld by all employees regardless of their ranks and whoever violates them should pay for doing so. Leaving some of the employees who were involved might affect the reputation of the company in future; therefore, it is better to get rid of all employees who were involved (Bardach & Patashnik, 2015). In summary, the two things that could have been done better were to respond to the issue in due time and also to make sure that all involved individuals were fired.

References

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