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Volvo Cars Corporation
Strategic Management Advisory
Report
by Avant-garde group

Module Leader: Mervyn Sookun
January 2015
MBA 2014-15
LSC

1

Avant-garde group

Samrawit b
...
The two founders, Assar Gabrielsson and Gustaf Larson, started this
Swedish car company with a view to make durable cars, which can withstand the cold temperature and
rough roads of Sweden
...

Volvo started rolling on April 14, 1927 with the production of its first car ÖV4 from the Gothenburg
factory
...

Volvo experienced a rapid growth during and after the world wars and set up several plants all over
Europe
...
) in the field of safety (Volvo
Group, 2014)
...
But the economic crisis 0f 2008 resulted in repeated mass-layoffs at Volvo and Ford offered
Volvo cars for sale
...

Volvo Cars is experiencing a major transformation followed by the Geely acquisition, where China is
now the second home market for Volvo cars with roots firmly based on its Swedish heritage
...
But the new administration is looking forward to gain the confidence
with brand new strategy ‘’Volvo Way to Market’’ focusing on marketing tools, digital leadership, dealerships and service
...
After a sharp drop in sales in the first quarter, Geely scraped their strategy of
making three separate brands – Emgrand, Gleagle and Englon to a single one as according to Geely’s
group chairman Li Shufu, the portfolio was too big to manage
...


4

5

[Figure 1]

Volvo’s Internal and External Analysis
According to Volvo Car Croup’s financial report for the 1st Quarter of 2013, company has experienced
revenue decline of 13
...
Operating income and net income figures
have been reported as negative 577 mln and 778 mln SEK (Swedish Krone) respectively
...
Primary challenges concentrated in the European markets, while Volvo’s performance in China continued to grow by some 34,3%
...
The research is based on preliminarily obtained data, which signals on Volvo’s risk to
disappear from the market as a brand by the end of 2014 and at its least, lose its previous market positions
...
, an analytical publication providing critical market analysis for investment
purposes, included Volvo in its forecasted list of 10 brands endangered by market disappearance by the
end of 2014 (www
...
com)
...


Volvo Cars
...

Each organization is about people, and in consideration of Volvo’s technological expertise, its staff is
highly important for Geely as a competitive advantage, in terms of continuous innovative development
and in enhancement of Geely’s capability
...
According to Williams and O’Reilly (1998), a group of individuals is diverse if they associate their social identities differently
...
On one hand, cultural diversity grants the
company with the variety of ideas and practices; on the other hand, Geely now bears huge responsibility for turning this factor into competitive advantage avoiding the danger of destructive organizational
composition and communication mechanism
...
(2011) brought up a very sensitive point
in his cultural diversity research
...


Volvo already had issues of decentralized vision back in 2001, operating as part of Ford
...
One of such confusions was Volvo’s single representation of the true meaning of car (Styhre and Kohn, 2006)
...
At the
same time, organizations are grounded on a number of day-to-day operations and practices
...
Wenger (2000) claims that
business success largely depends on company’s ability to secure itself from outside threats by means of
well-structured and commonly shared internal values and goals(See Figure 2for details)
...
Public speeches of Volvo’s CEO Hakan Samuelsson and Chinese Chairman demonstrated internal tensions
on the true origin of Volvo as a brand
...
Samuelsson highlighted the importance of Volvo’s
heritage, Chinese Chairman had a follow-up statement of Volvo being overwhelmingly Scandinavian
...
While production departments are concerned with
low-cost and time-efficient assembly keeping up sustainable quality, marketing units strive for new market opportunities, representing Volvo vehicles as an experience, rather than just transportation
...
Abrahamson (2000) states that well-communicated and thorough
understanding of organizational change process relieves from its dreadful aspects and consequences
...
Table 2 below illustrates direct correlation between production and sales, based on Volvo Cars data 2012-2013
...
Production Volumes

[Table 2]

The table 2 above suggests uneven allocation of strategic resources and competences, not fully realizing
company’s capacity
...

Another challenging area for Volvo is HRM
...
In after-acquisition environment, SML represents the following drawbacks:
•
•
•
•
•
•
•

8

Ignores staff collaboration;
Increases skill gap between Geely and Volvo Cars;
Ignores language barrier due to local scale of the system implementation;
Eliminates knowledge management supervision;
Creates confusion over clear performance targets to be achieved;
Grows staff decentralization;
May cause inadequate employee appraisal
...

Last section of the given part of research is evaluation instruments employed to reveal most urging
company’s areas for change and improvement
...


Elements of SWOT once again propose diligent equilibrium between company’s resources and competences, to hold still through competition and demonstrate its further growth potential
...
This tool is applied to evaluate current
external environment of Geely Holding and Volvo Cars consequentially (Figure 4 & 5)
...
These choices are made on the basis of the competitive strategy
(how to compete in the market), strategic direction and methods employed to achieve those strategic
objectives, Johnson & Scholes (1998; 218)
...
These generic strategies help to attain the five competitive forces mentioned earlier
and to outsmart other organisations in the same industry
...
Cost leadership: as the name indicates, cost leadership gives organisation advantage by restricting the cost expenditure on production of products or services
...
Low cost does not necessarily mean low price or low quality of products and services and quality of service/ product cannot be compromised under any
circumstances
...
Differentiation: it involves the ability of organisation to come up with unique
product that stands out from the whole industry for certain segment of the market
...
This also implies higher profitability
even though it is small market share
...

3
...
This strategy is highly focused on particular portion of the whole market where the organisation provides
specific services to meet its narrow segment of customers
...


12

The reason that Volvo needs to adopt this strategic choice is due to reason that Porter’s Generic give the
three internal strategies and Volvo can apply whichever strategy suits its current situations
...
As mentioned in the previous chapter, the decentralised structure among the marketing and production department Abrahamson (2000), shows that the company is not working towards common goal
...
Therefore, this strategy becomes handy by lowering its cost to turnaround its position
against its competitors
...
Using
this model as a tool can help Volvo to overcome its growth struggle
...
It is represented by diagrammatically
...
There
are eight potential strategic decisions available in the bowman’s strategic clock to enhance and gain
competitive advantage and position
...


13



North (1): adding customer value (differentiation)
...
Risky and high margins



South (7): low value product and standard price (low market share)



South west (8): low price and low added value (discount product position)



North east (2): this move is alone the line of value for money but increasing the price and value
of product/service (focused differentiation)


South east (6): high price and low value (monopoly)



Northwest (4): moderate product price and moderate value than its competitors
...
Simister: 2011; C
...
Faulkner: 1997)
...
What makes this strategic choice
unique is, it’s more detailed than the Generic model and organisation can identify their position and
take the precaution necessary to their situation
...
journal, Volvo’s current market
share is being swallowed by other strong competitors putting Volvo in the South (7) position in Bowman’s clock
...


Blue Ocean Strategy
The external business environment has two types of market space, the so called red and blue oceans
...

Organisations in this environment have boundaries set and the competition is known and understood
...
The entry barriers are low so number of small organisation joins to create even more
crowed
...
C
...
Mauborgne, (2005)
...
This environment represents industries
that do not exist currently and have undefined market with no competition
...
There are two ways to create the blue ocean:
1
...
ebay created innovative
way to auction items online
...
Blue Ocean created within the red ocean
...
They redefined the
boundaries within the red ocean
...


14

The significance of applying blue ocean strategy becomes critical to Volvo after it accusation to Geely
Car Group
...
This puts Volvo Car Corporation in the classification of the red ocean where there are numbers of competitors producing cars
...


Game Theory
Globalisation has created the platform for businesses to interact and each decision taken internally and/
or externally in the business environment affects the performance of the organisations
...
It assumes the interaction of industries as
a game, when businesses adopt strategic choice; they have to consider what others might do as a result
of the strategic choice
...
Organisations should have strategic choice with their suppliers
...
Erhun & P
...

Game theory models attributes to any global organisation within the red ocean zone
...

Volvo is highly focused in delivering quality product and developing new concept cars and has devoted
its resource on the engineering and design
...
Therefore this theory will be an eye opener to see what is going on of the other side of the business
...


Corporate strategy
The strategy of a company is formulated on the ground that reflects the organisation’s core values, objectives and the business strategic choice to achieve its goals in relation to its corporate strategy
...
It is also concerned
with decisions on the product and market scope definition, G
...
Scholes (1998:259-286)
...
This in turn supplements performance in delivering best
value for its customers
...
These parts include: the structure, the
staff within the organisation & suppliers, the process of manufacturing and technology employed to
perform activity throughout its life cycle
...
Detailed practical application
of the models to the above mentioned organizational issues will to be covered in the next chapter
...
Each department of Volvo was functioning independently from others, which is now threatening global market pursuit
...

Proposed Changes:
•
•
•
•
•
•

Management’s universalization of the company’s mission and vision;
Creation and establishment of a single interrelation and reporting mechanisms;
Constant staff rotation schemes for capability exchange and functional awareness;
Avoidance of organizational separation between Geely and Volvo;
Avoidance of departmental independence to eliminate structural misrepresentation;
Strict allocation of responsibilities and decision-making process design
...

Barrier Avoidance:
•
Balance the number of Chinese and European managers allocated throughout;
•
Compromise on future development strategy position
...

Shareholder Value:
•
Shared goals will strengthen both Volvo and Geely’s performance, bringing stable return to the shareholders
...


Organizational Culture Comparison of Volvo Cars and Geely Ltd
...

17

Possible Barriers
•
Smooth cultural and organizational integration of Volvo;
•
Geely’s management resistance to recognize Volvo’s team prevalence in expertise and its unique heritage
...
2009);
•
Admit Geely’s success dependence on Volvo
...

Shareholder Value
•
Volvo’s gradual improvement of its market performance and as a result, positive affect on shareholder’s value;

Processes issues (Based on Porter’s Generic Strategy, 1980)
As Volvo is prompted to handle competition with top European manufacturers, it should overtake
strict and committed process control approach, namely:
Proposed Changes:
•
Geely should input in organizational processes towards Volvo’s brand loyalty
and recognition;
•
Clear targets and criteria outline for each department and production unit;
Possible Barriers:
•
Lack of quality control in production processes;
•
Absence of a core product representation:
•
Volvo’s inefficient product design;
Barriers Avoidance:
•
Volvo Cars should not suffer from rapid and extreme introduction of new policies;
•
Design of motivation schemes in accordance with sectional performance, to
encourage employee affiliation
...


18

Shareholders Value:
•
Enhance company’s shareholders will enjoy the outcomes of investing into a
luxurious car brand to be re-positioned
...

Proposed Changes
•
Enable bigger investment into R&D;
•
Gain technological orientation on European competitors rather than Chinese
ones;
•
Reduce product gap between Geely and Volvo in terms of technological and
production targets;
•
Step forward from safe, towards prestigious and safe;
•
Settle distinctive Geely/Volvo technological development plans, yet minimizing
the gap and avoiding distortions (Cooper, 1993)
...

Barriers Avoidance
•
Full utilization of Volvo’s intellectual property;
•
Volvo’s need for confident control position due to trademarked technology;
•
Geely’s need for deviation from low-cost production
Implementation
•
Perform technological break-through in booming Chinese auto market;
•
Improve technological coordination between Geely and Volvo
Shareholders Value
•
Technological synergy of Volvo and Geely is seen beneficial for all parties involved, including the shareholders
...
This process needs a leader who formulates the most appropriate
strategy based on his/her observations to meet the company’s goals and objectives and to run it on the
track of the company’s mission statement (Jooste & Fourie, 2009)
...
According to Freedman & Tregoe (2003) strategic leadership is the art of creativity and setting a new fashion to the leader’s vision
...
Strategic thinking is also needed in
rough times when a company suffering from lack of resources, down turn or high competition market
...
It is also clear that in the complex and global world of 21st century, organizations must
broaden their horizon and have wider perspective to keep up with ongoing and inevitable changes in
business environment
...

The purpose behind creating all organizations is to raise money to add to their shareholders value
...
(Rainey, 2010) and this connection cannot be gain without a strategic leader who masters various sets of skills such as intelligence gathering and Analysis, Formulation, Strategic Master
Project Planning, Implementation, Monitoring, Reviewing and Updating (Freedman & Tregoe, 2003)
...
Strategic leader has both visionary and managerial capabilities
...
As a result, staffs feel more committed to their company
...

-The other positive point is, this leadership allows the board of directors and staffs have constructive
discussion and this enables employees to know about the company’s direction
...
It is an ongoing evaluation of competences and critical observation and questioning company’s process towards
achieving its objectives (Robinson, 2005)
...


From the above sections it is understood that it is difficult to ignore the need of strategic leadership in
new business environment especially for a global sized firm like Volvo
...
As it
is discussed earlier Volvo needs to keep its Swedish heritage and also increase its sales in global scale
...
In this manner they can keep continuing on Volvo’s safety mission statement and
reaching the goal of entering to the cars luxury market
...

and build a commitment throughout the company and its connections
...


21

Conclusion
The given report was prepared by the research team of Avant-garde Consultancy Ltd
...
Justification
of the study object – is Volvo’s request to our consultancy group (Anavt-garde) to provide advisory services on their current market position to increase their market share by means of new strategy implementation
...
Therefore, our
experts had to come up with a solid analysis based on Volvo’s past history and recent performance under Geely’s management
...

Moreover, the models were practically applied to most crucial areas of Volvo Cars, such as structure,
process, people and technology issues
...
Commonly reviewed report is finalized
by the advisory comments on the importance of strategic leadership to maximize performance indicators of Volvo Car Corporation
...
77%
Employed (ROCE)
Operating profit
0
...
43%

27

2012
-2
...
32%

-0
...
04%

0
...
46%

Internal & External Business
Environment

Decentralised vision as part of Ford (2001)
Absence of priorities and common value
Different view on the concepts of ‘Car’
Cultural integration with chines Geely Holding
(2010)
Cultural diversity for competitive advantage

28

Strategic Models

29

Porter’s Five Forces

30

Strategic Choice Models open to
Volvo car
Porter’s Generic

Cost Leadership : low overhead cost
Differentiation : unique product/service

Focus : niche market

Bowman’s strategic clock
North: differentiation
West: low price/low cost leaders
East :high price/ standard product
South: low value product/ standard price
South west: discount product
North east: focused differentiation
31

South east: monopoly
North west: hybrid

Blue Ocean Strategy
Blue ocean :-unknown market
- No boundaries set
-high entry barriers
* created within the blue ocean or
through innovation (new industry)




32

Red ocean:- defined market
- set boundaries
- Low entry barriers
- High competition

Game Theory Strategy
Studies the interaction and decision taken by organisation in the
business environment


Assumes the possibility action
its competitors might take
Helps to set the ‘right’ price to
increase market share

33

Strategy in Action

Structural issue: different managerial view between Geely and Volvo
People issues:
Process issues: future plan to enter
in to niche market
Technology issues: adhere to its
principles of safety, comfort, and
economic
34

IMPLEMENTATIONS

Well-structured and centralised
mission and vision
Efficient communication channels down the chain of command
More investment in product development if to enter niche segment
Coordination between Geely and
Volvo cars
35

Strategic Leadership

Characteristics
Tackling short term organisational issues
Meet long term sustainable goals
Makes framework and formulates strategy
Formulates value based on observation of
current organisational position

36

Strategic Leadership
Importance
It builds better network within and outside the organisation
Improves growth in time of difficulties
Magnifies human capital as an asset of
organisation
Involves staff in day-to-day operation
and decisions
Builds commitment throughout organisation

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On-going evaluation of competences &
critical observation of company’s performance

Thank you!

The Anavt-garde consultancy
group

38

39

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...
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