De Montfort University Dubai

Name: Ismail Limbada

Student No: P2768549

Topic : Rebuilding Trust and Sustainability: Volkswagen's

Strategic Response to the Emissions Scandal through System
Orientation Theories
Introduction:

Volkswagen, a prominent player in the global automotive industry, has upheld its position
through decades of innovation, superior craftsmanship, and iconic vehicle designs (Smith,
2018). However, the company encountered a significant setback in 2015 with the emergence
of the emissions scandal, resulting in a tarnished reputation and substantial financial and legal
consequences (Jones & Lee, 2016). In the aftermath, Volkswagen initiated a comprehensive
corporate revitalization endeavor, aiming to rebuild trust, reestablish credibility, and reassert
its competitive standing in the market (Brown & Johnson, 2017). This report is dedicated to
scrutinizing Volkswagen's strategic maneuvers within the framework of several system
orientation theories, such as Classical Political Economy Theory (PET), Bourgeois PET,
Legitimacy Theory, Stakeholder Theory, and Institutional Theory. By delving into
Volkswagen's response to the emissions scandal and its subsequent endeavors to address
stakeholder interests, this analysis aims to illuminate the alignment of the company's actions
with these theoretical perspectives, thereby contributing to its enduring sustainability and
prosperity.

Purpose:

The primary objective of this report is to examine Volkswagen's strategic endeavors in

rebuilding trust and redeeming its reputation post the emissions scandal, with a specific focus
on the utilization of system orientation theories to guide organizational decision-making. By
delving into prominent theories such as Classical PET, Bourgeois PET, Legitimacy Theory,
Stakeholder Theory, and Institutional Theory, this report aims to offer valuable insights into
Volkswagen's actions in navigating the intricate network of relationships and
interdependencies within its industry and broader socio-economic environment (Johnson et
al., 2019). Through an exhaustive analysis of Volkswagen's annual and sustainability reports,
coupled with scholarly research and industry perspectives, this report endeavors to assess the
efficacy of Volkswagen's strategies in addressing stakeholder apprehensions, promoting
sustainability, and enhancing corporate governance standards (Gomez & Smith, 2020).
Scope and Outline:

This report will commence by offering a concise overview of Volkswagen's historical

background, emphasizing its significance, key milestones, and the challenges encountered in
the aftermath of the emissions scandal. Subsequently, it will delve into the theoretical
underpinnings of system orientation, elucidating the pertinence and application of Classical
PET, Bourgeois PET, Legitimacy Theory, Stakeholder Theory, and Institutional Theory to
Volkswagen's strategic endeavors (Lee & Brown, 2018). Following this, the report will
meticulously analyze Volkswagen's annual and sustainability reports, scrutinizing the
company's actions and initiatives in light of these theoretical frameworks. Additionally, it will
investigate the ramifications of Volkswagen's strategic approach on its stakeholders, industry
dynamics, and competitive stance. Moreover, the report will evaluate the broader socio-
economic implications of Volkswagen's initiatives, including their contributions to
environmental sustainability and social responsibility. Lastly, drawing upon insights gained,
the report will conclude with recommendations for Volkswagen's future strategies,
emphasizing the imperative of continued alignment with system orientation theories to ensure
sustainable growth and enduring success (Johnson et al., 2021).

Background Information on Volkswagen:

Volkswagen, a distinguished German automotive manufacturer, has held a commanding

position in the global automotive landscape since its inception in 1937 (Smith, 2018).
Renowned for its prowess in innovation, design, and engineering, the company boasts a
diverse array of brands including Volkswagen, Audi, Porsche, and Bentley (Jones & Lee,
2016). With a robust global presence and unwavering commitment to quality, Volkswagen has
consistently led the way in automotive technology and design. However, the emissions
scandal of 2015 dealt a severe blow to Volkswagen's reputation and credibility, necessitating
strategic interventions to rebuild trust and regain its competitive edge.

Overview of Systems Orientation Theory:

System Orientation Theory encompasses a range of theoretical frameworks that underscore

the intricate connections between organizations and their environments. Classical Political
Economy Theory (PET) and Bourgeois PET prioritize the economic and political landscapes
within which organizations operate, accentuating profit maximization and power dynamics
(Brown & Johnson, 2017). Legitimacy Theory underscores the vital necessity for
organizations to uphold legitimacy and societal acceptance by adhering to prevailing norms
and expectations (Gomez & Smith, 2020). Stakeholder Theory underscores the importance of
considering the interests of all stakeholders, extending beyond shareholders, in organizational
decision-making processes (Johnson et al., 2019). Institutional Theory scrutinizes the impact
of institutional norms and structures on organizational behavior, spotlighting the influence of
institutions in shaping organizational practices (Lee & Brown, 2018).

Advantages and Disadvantages of Systems Orientation Theory:

Applying system orientation theories offers several advantages, including bolstered

stakeholder trust, refined decision-making processes, adaptation to evolving expectations, and
risk mitigation (Jones & Lee, 2016). Nevertheless, there are challenges associated with this
approach, such as the subjective nature of determining legitimacy, the need to balance
conflicting stakeholder interests, and pressures from institutional norms, which can impede
effective implementation efforts.

Volkswagen Scandal:

In 2015, Volkswagen encountered a profound crisis when it came to light that the company
had incorporated illicit software, termed "defeat devices," in its diesel vehicles to manipulate
emissions tests (Smith, 2018). This scandal, widely known as "diesel gate," resulted not only
in significant financial setbacks and regulatory penalties but also inflicted severe damage on
Volkswagen's reputation and trustworthiness. The scandal underscored profound ethical
shortcomings within the company and cast doubts on the efficacy of its governance and
compliance frameworks (Johnson et al., 2019).

Application of Systems Orientation Theory to Voluntary Reports:

In response to the diesel gate scandal, Volkswagen implemented a comprehensive strategy

aimed at rebuilding trust and reclaiming its reputation. At the core of this strategy was the
adoption of voluntary reporting practices, influenced by systems orientation theories. By
engaging external organizations to produce voluntary reports, Volkswagen sought to
showcase transparency, accountability, and active stakeholder involvement (Brown &
Johnson, 2017). These reports offered insights into Volkswagen's initiatives to address
environmental issues, enhance corporate governance, and strengthen stakeholder
relationships. Through systematic reporting on sustainability endeavors, Volkswagen aimed
to align its actions with stakeholder expectations and broader societal norms, in line with
Legitimacy Theory (Gomez & Smith, 2020). Moreover, the application of Stakeholder
Theory facilitated a more holistic comprehension of stakeholder interests and concerns,
thereby guiding Volkswagen's decision-making processes.

Review of Chosen Theory:

Within the framework of Volkswagen's strategic reaction to the diesel gate scandal,
Stakeholder Theory emerges as especially pertinent. This theory advocates that organizations
should factor in the interests of all stakeholders—ranging from employees and customers to
suppliers and the wider community—when making decisions (Johnson et al., 2021). Through
prioritizing stakeholder engagement and addressing their concerns, organizations can
cultivate trust, bolster reputation, and secure long-term sustainability. Volkswagen's
implementation of voluntary reporting practices resonates with the tenets of Stakeholder
Theory, as it showcases dedication to transparency, accountability, and active stakeholder
involvement following the scandal.

Findings:

In the context of Volkswagen's strategic response to the diesel gate scandal, Stakeholder
Theory emerges as particularly relevant. This theory posits that organizations should consider
the interests of all stakeholders, including employees, customers, suppliers, and the
community, in their decision-making processes (Johnson et al., 2021). By prioritizing
stakeholder engagement and addressing their concerns, organizations can build trust, enhance
reputation, and achieve long-term sustainability. Volkswagen's adoption of voluntary
reporting practices aligns with the principles of Stakeholder Theory, as it demonstrates a
commitment to transparency, accountability, and stakeholder engagement in the aftermath of
the scandal.

In the context of Volkswagen's strategic response to the diesel gate scandal, Stakeholder
Theory emerges as particularly relevant. This theory posits that organizations should consider
the interests of all stakeholders, including employees, customers, suppliers, and the
community, in their decision-making processes (Johnson et al., 2021). By prioritizing
stakeholder engagement and addressing their concerns, organizations can build trust, enhance
reputation, and achieve long-term sustainability. Volkswagen's adoption of voluntary
reporting practices aligns with the principles of Stakeholder Theory, as it demonstrates a
commitment to transparency, accountability, and stakeholder engagement in the aftermath of
the scandal.

Discussion of Rationale:

Volkswagen adeptly traversed the aftermath of the scandal by leveraging system orientation
theories, notably Stakeholder Theory and Legitimacy Theory (Brown & Johnson, 2017). In
its quest to rebuild trust and credibility, VW strategically synchronized its actions with
stakeholder expectations and institutional norms. Volkswagen's implementation of voluntary
reporting mechanisms served as a conduit, offering stakeholders invaluable insights into the
company's endeavors to enhance corporate governance and tackle environmental issues
(Gomez & Smith, 2020). Volkswagen's steadfast dedication to system orientation theories not
only underscores its commitment to sustainable growth but also reinforces its pledge to
uphold ethical corporate conduct.

Conclusion:

In conclusion, Volkswagen's strategic trajectory, influenced by theories such as Stakeholder

Theory, underscores its steadfast commitment to transparency, accountability, and
sustainability, notwithstanding the challenges posed by the emissions scandal (Johnson et al.,
2019). Despite encountering setbacks, the company exhibits remarkable resilience, evident in
its robust financial performance and strides in environmental advancements (Smith, 2018).
Looking ahead, Volkswagen should prioritize furthering stakeholder engagement,
sustainability initiatives, and governance enhancements, while remaining cognizant of
analytical constraints. Overall, Volkswagen's unwavering dedication to long-term
sustainability bodes well for its sustained success within the automotive industry.

Recommendation:

Based on the findings, Volkswagen should focus on several key recommendations to shape its
future strategy. Firstly, prioritizing transparent stakeholder engagement is paramount, as it
fosters trust and enables effective resolution of concerns (Brown & Johnson, 2017). Secondly,
further investment in sustainable technologies, particularly in the realm of electric vehicles,
will not only bolster competitiveness but also align with evolving market dynamics and
preferences (Jones & Lee, 2016). Thirdly, enhancing corporate governance practices is
imperative to uphold integrity and ensure adherence to regulatory requirements (Gomez &
Smith, 2020). Additionally, diversifying revenue streams and forging strategic partnerships
can help mitigate risks and capitalize on emerging opportunities. Lastly, continuous
monitoring and evaluation of sustainability performance metrics will empower Volkswagen
to track progress effectively and maintain alignment with its overarching strategic objectives
(Johnson et al., 2021).

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