It can be stated that labor issues contributed to the success of the company on several levels. On the one hand, the location of the plants can be seen as an important factor determining the cost of labor, which is consequently reflected on company’s profits. On the other hand, labor was one of the company’s problems that provided challenges to Piech upon his arrival in 1993 as the CEO of VW. The location of the factories, in that regard, was a critical factor in those challenges, where “most factories were in poorly developed areas, [and] seemed impossible to lay the workers off”.
Introduced innovations
One of the ways the company addressed these issues were through the introduction of various innovation in labor management. Such innovations include aspects such as the following:
- Flexible schedules – addressing the surplus in employment in several areas, the employees were offered flexible schedules, rather than layoffs. In such way the company addressed improved the flexibility and the efficiency of the production.
- Quality and unemployment reduction – the company tackled low employment areas, through guaranteed salaries, with the condition of meeting certain quality standards.
- The introduction of four-day workweek – in such way the company could manage to overcome the recession, without the need for mass layoffs
Among the traditional approaches to labor common to other manufacturers is the adoption of a global manufacturing system, after which “foreign employment levels had increased from 41% of the total in 1993 to 51% in 2001”. All of the latter can be seen as in the context of cost reduction and increasing flexibility and efficiency. The differentiation between the strategies for regional plants and foreign plants allowed the company to manage labor issues individually.
For many, the regional strategy might be seen as an attempt to buy labor peace. Nevertheless, such approach even in such interpretation can be justified, considering potential consequences, which can be seen through the problems that the Puebla plant experienced, suffering a major strike that forced “18 percent increase in wages—although 5 percent was tied to production rates”.
The importance of labor relations can be seen also in the context of potential lawsuits, an aspect that can be specifically outlined with the intention of Piech of “buying labor peace”. Accordingly, tracing the connection between good labor relations and company’s success, the labor scandal of the company in VW, involving corruption by managers and labor representatives, was tied to the company losing its momentum of success.
Top management
In terms of top management the main introductions were related to changing the way management operates in foreign plants. Rather than be sent on assignments as punishment, top management was guaranteed a higher position on return. Such approach allowed better quality control on foreign plants. Accordingly, setting competition between brands and self-interest contributed to that the less successful brands did not rely on the more successful brands. The latter was specifically important to the company’s strategy of differentiation, making brands such as Skoda and Seat catch with the rest of the subsidiaries.