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The Importance of Creating a Strategic Fit Between Organizational Structure, Objectives, and the Environment: An Analysis of Selected Automobile Companies (BMW, Volkswagen, and Toyota)

1 INTRODUCTION

2 LITERATURE REVIEW

3.1 Organizational Structure

• Volkswagen

Volkswagen Group’s organizational structure hinges on product division which ensures that domestic divisions (regions or countries) assume global responsibility for their product portfolios. Business operations are categorized into two namely (a) automotive, and (b) financial services. The Automotive Division handles business activities relating to passenger cars, commercial vehicles and power engineering whereas activities under Financial Services Division include direct banking, insurance, vehicle leasing, dealer and customer financing, fleet management and mobility offerings.

Global operations of Volkswagen AG and the Volkswagen Group are overseen by the Management Board of Volkswagen AG in compliance with the automaker’s Articles of Association. The Board’s activities are also governed by “Rules of Procedure” approved by the Supervisory Board. While the Board steers affairs of the company, the Supervisory Board has the responsibility of appointing, monitoring and advising the Board on crucial business and governance issues.

Figure 3: Volkswagen Structure

Source: Volkswagen Annual Report (2022)

Before 31 December 2021, Volkswagen’s Board was divided into 8 positions namely: The Chairman; Volume Brand Committee; Finance & IT; Components & Procurement; Human Resources and Truck & Bus; Integrity and Legal Affairs; Premium, Sport & Luxury; and China. As of December 31, 2020, committee members in the Finance and IT segment have been temporarily responsible for Components while the Chairman oversees business operations in Volkswagen’s largest market, China.

The Supervisory Board in December 2020 shared responsibility for Components and Procurement by replacing it with two leadership positions—Purchasing and Technology. Both Board positions took effect from January 1, 2021. But considering the relevance of technology, innovation and global sustainability to the automotive industry, Volkswagen’s Technology Board takes charge of all Components activities worldwide, including: (a) marketing of the Volkswagen platforms to third parties (b) facilitating research and development (R&D) for designing and manufacturing battery cells (c) procurement of necessary raw materials (d) control of charging systems and charging process as well as related joint ventures worldwide.

Herbert Diess is Volkswagen’s Chairman, Board of Management.

• Toyota

Toyota Motor Corporation operates a divisional organizational structure centred around market, product, and geographic segments. The automaker’s corporate structure thus comprises product-based divisions, global hierarchies (with key decisions taken from Toyota headquarters in Japan) and geographical divisions based on countries/regions.

Figure 4: Toyota Structure

3.2 Business Objectives and the Environment

• BMW

Vision: “To be the most successful premium manufacturer in the automobile industry.”

Mission Statement: “To become the world’s leading provider of premium products and premium services for individual mobility.”

Core Values: “Responsibility, appreciation, transparency, trust, and openness.”

BMW was voted “The World’s 14th Largest Carmaker” with 2,279,503 vehicles produced in 2017. But prior to achieving this milestone, the German multinational was enmeshed in several lawsuits relating to faulty exhaust gas recirculation (EGR) system that caused fire outbreaks in some BMW car models manufactured between 2005 and 2017. Customers also for injuries and deaths arising from problematic and dangerous Takata airbags used in BMW cars. Poor handling of these issues still has a negative impact on BMW’s public image. Again in 2018, a group of U.S. diesel drivers took legal action against the automaker for colluding with Mercedes Benz and Volkswagen to cheat during a carbon emissions test in Switzerland—a managerial decision which caused an uproar among customers, environmental activists and the global community (Thakur et al, 2022; Silva and Grützmann, 2022).

Findings from this research indicate that BMW Group has learned from past mistakes, specifically its inability to find the strategic fit between structure, objectives and the environment (Polonsky, 1995; Pries and Seeliger, 2014; Kukkamalla et al, 2022). Current achievements are a result of significant transformations in corporate governance, global strategy and ESG performance. In other words, BMW’s winning strategy is driven by focus on efficient workflows, global sustainability, consumer safety, industry collaborations, stakeholder value creation and numerous CSR projects across the world (Pries and Seeliger, 2014; Kurniawan et al, 2014; Kukkamalla et al, 2022). According to the Group Report (2021), BMW financials increase in every aspect of business operations—Revenue (€111.239 billion), Operating Income (€16.060 billion), Net Income (€12.463 billion), Total Assets (€229.527 billion), and Total Equity (€75.132 billion) notwithstanding the huge impact from pandemic-related challenges (Karman and Savanevičienė, 2021; Laorden et al, 2022). BMW’s recent focus on producing hybrid and fully electric vehicles (EVs) in compliance with global sustainability demands has been crucial to its survivability in a fast-paced global market driven by various political, economic, sociocultural, technological, legal and ecological factors (Silva and Grützmann, 2022).

• Volkswagen

Vision: “To make this world a mobile, sustainable place with access to all the citizens.”

Core Values: Accountability, teamwork, servant’s attitude, and integrity.

Volkswagen has no mission statement, but its business goal is to produce appealing, safe and environmentally-sound vehicles that offer competitive advantage in an increasingly volatile market and set global standards in their respective categories.

Volkswagen has leveraged its robust organizational structure and improved corporate culture to reduce losses and revive a public image battered by various scandals and Clean Air Act violations. The achievements come from a strategic direction to strengthen business/leadership structure across regions, increase R&D investment and deliver high-quality products that meet consumer demands and environmental standards. These objectives have been feasible because Volkswagen uses a top-down (decentralized) structure that ensures key decisions are taken by leaders who rely on suggestions from competent advisers.

However, Volkswagen’s decentralized executive structure has been criticized for limiting creative thinking and innovation as well as information sharing with stakeholders. The corporate culture lowers the level of employee motivation and engagement, creates fiction mong teams, and makes it hard for workers to prioritize organizational objectives. This underscores the importance of open communication, decision-making, and innovation to employee productivity and organizational growth (Elson et al, 2016).

Volkswagen’s new, employee-centred organizational culture has been aligned with its corporate structure—specifically a fluid hierarchical management approach—to streamline decision-making processes, improve workflows, and empower individuals to pursue organizational objectives. For example, Volkswagen’s Passenger Cars segment is consistently adapting its management structure to keep pace with future-oriented innovations. To meet this objective in the Volkswagen segment, tasks are redistributed within Volkswagen’s Board and this strategic, structure-based change resulted in the creation of a new “Digital Car & Services” division that commenced operations on March 1, 2022. This way, Volkswagen enhanced its pace for developing digitalized automobile systems and capacity to implement policies for better ESG performance.

• Toyota

Vision: “To lead the future mobility society, enriching lives around the world with the safest and most responsible ways of moving people.”

Mission: “To make ever-better cars, to build a future where everyone has the freedom to move.”

The 5 key principles by Toyota founder, Sakichi Toyoda, emphasize (a) commitment to behaviours that create value for individuals, company and stakeholders (b) support for education, innovation and creative thinking to always achieve competitive advantage (c) planning and consistent growth (d) establishment of a conducive and inspiring workspace (e) gratitude and respect for spiritual matters. These principles have influenced Toyota’s structure, objectives and performance in the global automotive industry since 2016, when it lost $3.4 billion in lawsuit related to corrosive frames used in over 1.5 million Sequoia, Tundra and Tacoma pickup trucks and SUVs. Also, there are controversies relating to employees’ death from exhaustion, environmental breaches, misleading marketing ads, and vehicle recalls—including the Takata airbag problems.

As one of the world’s leading automobile manufacturers, Toyota relies on its highly effective organizational structure to efficiently implement policies that support business goals and strategic direction. In other words, the automaker leverages its organizational structure to improve efficiency and capacity utilization, with emphasis on employees’ health and consumer safety. Thus, organizational structure is a key determinant of Toyota’s milestones in the global market, notably its status as the “world’s first carmaker to deliver over 10 million vehicles in a year”—a record set in 2012 with the production its 200 millionth vehicles.

Toyota strategically aligns organizational structure, objectives and the environment to remain competitive through its focus on product quality, global sustainability and ceaseless innovation. Toyota’s high ESG score was achieved by recruiting employees who have the passion to transform mobility and a conviction that there is always a better way. “The Toyota Way” implies combining software, hardware and partnerships to create value for shareholders and stakeholders. With constant improvement of structure and alignment of objectives with environmental demands, Toyota can become a strong corporate citizen trusted by stakeholders in global markets (Avery and Bergsteiner, 2011; Polonsky, 1995; Chatzoglou et al, 2018).

4 CONCLUSIONS

Because organizations (as a sub-system) interact with the environment on regular basis, the input and output relationship certainly influence the structural framework of organizations (Chatzoglou et al, 2018). Thus, the structure and goals of organizations must be designed in view of the systemic pressures. This implies that organizations existing in a volatile, uncertain and complex environment should establish structures that are more flexible, dynamic and adaptive. On the other hand, companies in a less complex and slow-paced system can be structured with a high level of stability. However, it must be noted that the rapid, diverse and ambiguous changes driven by technology advancement, climate change, global recession and COVID-19 factors have rendered traditional structures totally ineffective (Soylu et al, 2022; Laorden et al, 2022; Polonsky, 1995; Soylu et al, 2022).

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