By John McElroy Autoline<\/p>\n
Any efficiency expert studying Volkswagen would have a fit. On paper the company looks like a productivity basket case.<\/p>\n
Get this. VW AG employs 550,000 people globally. That\u2019s 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.<\/p>\n
On an employee-per-vehicle basis, or a revenue-per-employee basis, Volkswagen looks hopelessly inefficient. And yet VW\u2019s revenue of $200 billion dwarfs everyone else. Last year\u2019s operating profit of $14 billion is the kind of bottom line performance you expect from Big Oil companies. While VW\u2019s stated goal is to become the world\u2019s largest car company by 2018, it\u2019s already there if you measure it by revenue and profits.<\/p>\n
So how can VW look so uncompetitive from a productivity standpoint, yet be so profitable?<\/p>\n
That\u2019s because today\u2019s business schools have got it all wrong. They teach MBA\u2019s 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.<\/p>\n
All of VW\u2019s 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\u2019s it. In other words, they have lots of overlap and duplication.<\/p>\n
Guess what? That\u2019s how GM used to run. In the 1960\u2019s GM had over 700,000 employees, was very vertically integrated, and was the most profitable corporation in the world. Then the MBA\u2019s ruined it all.<\/p>\n
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\u2019re up against.<\/p>\n