Volkswagen's organizational structure and financial performance decline

Volkswagen's Performance And Organizational Structure

Volkswagen's growth over the past three decades has been a roller coaster characterized by numerous ups and downs. In 2002, the company hired Bernd Pischetsrieder, the former BMW boss to help fix its problems. While the new boss developed strategies towards promoting Volkswagen's growth, the well established plans usually go astray. The company's poor performance is evident in the fact that is share price has decline with approximately 50% whereas its profits decreased by 36%. In addition, more than 50% of Volkswagen's 100 managers are not used to making decisions on their own. This is an indication of the huge problems at Volkswagen, which also requires changes in its organizational structure.

Volkswagen's Recent Performance

The decline in the company's share price and profits as well as a seemingly ineffective organizational structure at Volkswagen is an indication of the numerous problems it currently faces across all its operations. First, the firm's customers have decided that it would have to add more value to their money if they have to retain loyalty. This is influenced by the fact that Volkswagen has traditionally charged more for its products due to innovation, quality, and an indirect lifetime guarantee. The other factors include loss of competitive advantage to GM, declined sales in China's booming market, ineffective cost-cutting measures, and labor pains.

In the past few years, Volkswagen has experienced fortunes and misfortunes in its growth and productivity. According to Team (2014), Volkswagen experienced an increase in production by 4.2% i.e. 10.14 million cars though this was still lower than the 10.23 million cars sold by Toyota. The firm's own-branded passenger vehicle also experienced slight growth and accounted for a huge 60% of all volumes sold by Volkswagen during this financial year. This represented 1.6% growth, which slowed down the company's profitability, though demonstrated its recent growth as compared to the previous years. Despite being seemingly unable to gain from the increase in automotive demand in the United States since 2006, the company registered some gains on positive currency translations. These slight gains emerged from the fact that the U.S. dollar was appreciating against the euro. Over the last two to three years, Volkswagen slightly growth has been brought by an increase in sales for its luxury divisions i.e. Bentley, Audi, and Porsche. These divisions have not only accounted for 40% of net revenues but also resulted in nearly 75% of Volkswagen's net operating profits (Team, 2014).

However, the misfortunes during this period include declined growth characterized by declining share price. In the United States, Volkswagen's own-branded passenger cars declined by approximately 10% regardless of the growth in demand for vehicles throughout the country. In the last quarter of last year, the company's stock was more than 50% below its 52-week high it registered in the first-quarter of the year (La Monica, 2015). The other misfortunes are poor brand reputation and tension among Volkswagen's other managers.

Recommended Organizational Structure

As evident in the analysis, the current bureaucratic organizational structure at Volkswagen has partly hindered its success and profitability. A new organizational structure that would be suitable for Volkswagen is a boundaryless structure that eliminates all vertical, horizontal, and external boundaries by opening the span of control and establishing empowered work teams. This structure is recommended on the assumption that centralized control an authority hinders profitability through suppressing product lines, units, and functions (Robbins & Judge, 2013, p.492).

In conclusion, Volkswagen has experienced numerous challenges across its operations in the recent past. As evident in this analysis, these challenges have been demonstrated in declined profitability and decline in stock price. While the company has attempted to address them through hiring new managers, the existing bureaucratic organizational structure has been ineffective. Therefore, the most suitable structure is a boundaryless organizational structure that will promote an effective culture towards productivity through removing barriers.