Problems that Volkswagen Organization had before implementing Activity-Based Costing
Before starting the implementation of ABC, Volkswagen had the same problems that automotive and manufacturing industries faced in the 1990s. These problems included massive technological changes, increased competition, difficulties in decision-making, inability to provide accurate cost information to the management, and pressure from the ever-growing expectations from the higher management in the corporate head office (NAGEL, 1991).Automotive industry is dynamic in nature and technological changes are likely to be a huge factor in deciding who controls the market. Automotive manufacturers with better technology are likely to win the ever-present competition in the auto motive industry. Massive technological changes brought various challenges to the automotive industry in the 1990s. Various automakers emerged in this period and took control of the market, for instance, Japanese auto manufactures Toyota.
They took over more that 25% of the United States of America automotive market (GUERZONI, 2013). They had superior technology over other automakers in the market. This situation posed a huge challenge to Volkswagen Canada since U.S market was the main market for the auto motives they made. For this reason, Volkswagen Canada had to rethink various ways in which they could regain their sport in the U.S auto motives market.Difficulty in decision-making is the other main challenge that Volkswagen Canada faced. These difficulties were caused by the market rivalry in the auto industry. This situation caused managers at Volkswagen to experience problems in decision-making since this kind of rivalry is centered on two strategic variables. These variables are product variety and quality, and transactions price (BRINKMANN, 2011). Any decision made by the management must consider the two variables carefully ; otherwise, a single mistake might cause the particular manufacturer to lose their position in the market. Decision making for Volkswagen Canada was even harder due to pressure on the managers from the higher management in the corporate office. This pressure coupled with inaccuracies in the provision of cost information to the management made the implementation of activity-based costing a necessity.
References
BRINKMANN, L. (2011). Global competitiveness of the car industry A double diamond approach of Volkswagen and Toyota. München, GRIN Verlag GmbH. http://nbn- resolving.de/urn:nbn:de:101:1-201103144226.
GUERZONI, M. (2013). Product variety in automotive industry: understanding niche markets in America. http://dx.doi.org/10.1007/978-3-319-01907-9.
NAGEL, R. N. (n.d.). 21st century manufacturing enterprise strategy: industry-led view. [S.l.], Diane Pub. Co.
