Why Volkswagen Is The Most Amazing Car Company In The Industry
By John McElroy Autoline
Any efficiency expert studying Volkswagen would have a fit. On paper the company looks like a productivity basket case.
Get this. VW AG employs 550,000 people globally. That’s a staggering number. Fortune magazine lists it as the 8th biggest employer in the world, behind giants such as Wall Mart and the Chinese post office. VW has almost as many full-time employees as General Motors, Ford and Fiat-Chrysler put together.
On an employee-per-vehicle basis, or a revenue-per-employee basis, Volkswagen looks hopelessly inefficient. And yet VW’s revenue of $200 billion dwarfs everyone else. Last year’s operating profit of $14 billion is the kind of bottom line performance you expect from Big Oil companies. While VW’s stated goal is to become the world’s largest car company by 2018, it’s already there if you measure it by revenue and profits.
So how can VW look so uncompetitive from a productivity standpoint, yet be so profitable?
That’s because today’s business schools have got it all wrong. They teach MBA’s that centralized operations eliminate overlap and duplication. Yet VW maintains strongly decentralized operations with lots of overlap. Business schools preach the benefits of outsourcing to cut cost. Yet VW is very vertically integrated.
All of VW’s brands from Audi to Skoda are treated as stand-alone companies. They have their own boards of directors, their own annual report, their own separate design, engineering and manufacturing. Yes, they do share some platforms and powertrains and purchasing, but that’s it. In other words, they have lots of overlap and duplication.
Guess what? That’s how GM used to run. In the 1960’s GM had over 700,000 employees, was very vertically integrated, and was the most profitable corporation in the world. Then the MBA’s ruined it all.
VW has an enormous competitive advantage that no amount of rationalization, cost-cutting, outsourcing or strategic partnerships is going to overcome. This is a direct threat to every car company in the world, but I wonder how many automotive executives are even aware of what they’re up against.
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In: Business Stories · Tagged with: Basket Case, Benefits Of Outsourcing, Boards Of Directors, Bottom Line Performance, Business Schools, Car Company, Centralized Operations, Chinese Post, Design Engineering, Dwarfs, Efficiency Expert, Fortune Magazine, John Mcelroy, Operating Profit, Profitable Corporation, Rationalization, Staggering Number, Time Employees, Vw Ag, Wall Mart
