Application of the TOWS Matrix to Volkswagen
The foregoing discussion of the conceptual framework for strategic planning can be illustrated by an example.
Volkswagen (VW) was chosen because it demonstrates how a successful company experienced great
difficulties in the early 1970s, but then developed a strategy that resulted in an excellent market position in the
late 1970s. The TOWS Matrix shown in Figure 5 will focus on the crucial period from late 1973 to early
1975. The external threats and opportunities pertain mostly to the situation VW faced in the United States, but a similar situation prevailed in Europe at that time.
The External and Internal Environment
In a situational analysis as conceptualized above, one would first list and analyze the threats and opportunities
in the external environment and the weaknesses and strengths of the enterprise before developing alternative
strategies and tactics. However in this illustration to be concise, the situation and the related actions, shown in
Figure 5, are combined.
Strategies and Tactics
Strategies, as discussed earlier, pertain to major courses of action for the achievement of the enterprise mission and comprehensive objectives. Tactics, on the other hand, refer to action plans by which strategies are executed. In practice, and even conceptually, these distinctions are often blurred.
Weaknesses and Threats (WT). A company with great weaknesses often has to resort to a survival strategy. VW could have seriously considered the option of a joint operation with Chrysler or American Motors. Another alternative would have been to withdraw from the American market altogether. Although in difficulties VW did not have to resort to a survival strategy because the company still had many strengths. Consequently, a more appropriate strategy was to attempt to overcome the weaknesses and develop them into strengths. In other words, the direction was toward the strength-opportunity position (SO) in the matrix shown as Figure 5. Specifically, the strategy was to reduce the competitive threat by developing a more flexible new product line that would accommodate the needs and desires of the car-buying public.
|Application of the TOWS Matrix to Volkswagen|
Weaknesses and Opportunities (WO). The growing affluence of customers has resulted in ‘trading up’ to more luxurious cars. Yet, VW had essentially followed a one-model policy which presented a problem when the design of the Beetle became obsolete A new model line had to be introduced to reach a wider spectrum of buyers. In order to minimize the additional costs of a multiproduct line, the building block principle was
employed in the design of the new cars. This allowed using the same parts for different models that ranged
from the relatively low-priced Rabbit to the higher priced Audi line.
Another weakness at VW was the rising costs in Germany. For example, in 1973 wages and salaries rose 19
per cent over the previous year. Similarly, increased fuel costs made the shipping of cars to the United States
more costly. This situation favored setting up an assembly plant in the United States. However, this also
created some problems for VW because it had no experience in dealing with American organized labor. To
overcome this weakness, VW’s tactic was to recruit managers from Detroit who were capable of establishing
good union relations.
Strengths and Threats (ST). One of the greatest threats to VW was the continuing appreciation of the Deutsche mark against the dollar. For example, between October 1972 to November 1973 the mark appreciated 35 per cent. This meant higher prices for the buyer. The result, of course, was a less competitive posture. Japanese and American automakers obtained an increasingly larger share of the small-car market. To reduce the threats of competition and the effects of the unfavorable exchange rate, VW was forced to build an assembly plant in the United States.
Another strategy for meeting competitive pressures was to build on VW’s strengths by developing a car based
on advanced-design technology. The result of this effort was the Rabbit, a model with features later adopted by many other car manufacturers.
The oil crisis in 1973-1974 not only caused a fuel shortage, but also price rises, a trend that has continued. To
meet this threat, VW used its technological capabilities not only to improve its engines (through the use of fuel
injection, for examples), but also to develop the very fuel-efficient Diesel engine. This tactic, which was
congruent with its general strategy, helped improve the firm’s market position.
Strengths and Opportunities (SO). In general, successful firms build on their strengths to take advantage of
opportunities. VW is no exception. Throughout this discussion VW’s strengths in research, development,
engineering, and its experience m production technology became evident. These strengths, under the
leadership of Rudolf Leiding, enabled the company to develop a product line that met market demands for an
economical car (the Rabbit, successor to the Beetle), as well as the tastes for more luxurious cars with many
available options (Scirocco and the Audi line).
Eventually the same company’s strengths enabled VW to plan and build the assembly facility in New Stanton,
Pennsylvania. Thus, YW could benefit from substantial concessions granted by the state government to attract
VW which, in turn, provided many employment opportunities.
In another tactical move, VW manufactured and sold small engines to Chrysler and American Motors. These
companies urgently needed small engines for installation in their own cars and revenues from these sales
improved the financial position of VW.