During most of the 1980s and into the 1990s, Volkswagen AG has pursued a daringexpansion strategy. The company acquired two major carmakers, Seat in Spain and Skodain Czechoslovakia. According to Carl Hahn, Head of Volkswagen during the period, thestrategy was aimed at creating a "federated" European company: a true multinationalemerging from the European theatre, gaining the capacities to compete across the boardworldwide. as part of the federated nation, there are separate divisions for each of thecompany's two existing morgues, or brands, Volkswagen and Audi, and separate divisionsfor both Seat and Skoda. Each division has been given a great deal of operating autonomy.

The rationale behind the structure is to allow the different brands to customize theirproducts to meet the requirements of their particular groups of customers. Volkswagenbelieves that profits in the automobile industry of the future will be earned mainly frommeeting the needs of increasingly narrow groups of customers. Having separate divisionsprovides flexibility. For example, if young drivers in Europe develop an appreciation forMediterranean styling, then Seat can take the lead in appealing to this group.At the same time, each division is to emphasize Volkswagen's traditional strength,namely, solid engineering and drivability. For this reason, a major research and developmentcenter is maintained in Germany for the use of all the divisions. Even with their autonomy,the divisions are still expected to co-operate and share when it is in the best interest of thecompany.

To facilitate co-operation, the chief executive of each division participates in theboard of management of Volkswagen AG. In Germany, the principle of "codetermination"applies, whereby publicly traded companies have both a board of management and asupervisory board. The board of management usually has about 10 members, who are topexecutives in the company. This board is responsible for the day to day management andoperation of the company. In contrast, the supervisory board exercises oversight. Half ofits 12 to 20 members are employee representatives and half represent owners and are electedin a manner similar to the election of board of directors in the United States. Thesupervisory board has the exclusive power to appoint members of the management board,and it awards each executive a contract for 1 to 5 years (renewable if the executive is (performing satisfactorily). The supervisory board also participates in matters that cansignificantly affect employment. Hence its approval is necessary for foreign acquisitions(such as those of Seat and Skoda) and plans to establish factories abroad.

Indeed, Volkswagen has been building or retooling plants in various parts of theworld, such as former East Germany, China and Mexico. This expansion has enabled thecompany to serve national markets more effectively, as well as to reduce labor costs. Thetown of Wolfsburg, Germany which is the site of Volkswagen headquarters, also containsthe world's largest automotive plant under one roof. Partially because labor costs areexceptionally high, Volkswagen has expanded considerable effort to automate the plant.Workers have been freed to concentrate on less routine aspects such as customization, thatare difficult for robots to do. In 1990, about 60% of Volkswagen's automobiles were madein the company's 9 German plants. Less automation is used in other parts of the world,where labor costs are lower.

Although the expansion has led to greater market share, it has been expensive. Thecompany is spending $50 billion over a 5-year period to expand across Europe fromCzechoslovakia to Spain, including a $3 billion production line being established in Swickauin Eastern Germany.Unfortunately, profits have been modest. The challenge facing thecurrent Volkswagen chief executive, Ferdinand Piech, is to cut costs and makeVolkswagen's various expansion projects pay off. The company faces increasedcompetition from Japanese cars that are made at less cost and from U.S. car manufacturerswith operations in Europe.

QUESTION

1.Identify The Type of departmentalization used by Volkswagen with explanation?

2.Identify type of structural design?

3.Draw the organogram?

4.Is there centralization or decentralization?