Business Strategy
Strategic Orientation Towards Internal Customers: The Success Mantra of Volkswagen

Article Details
Pub. Date : Dec' 2020
Product Name : The IUP Journal of Business Strategy
Product Type : Article
Product Code : IJBS21220
Author Name : Manoj Kumar Sharma and Sonali Sharma
Availability : YES
Subject/Domain : Strategic Journals
Download Format : PDF Format
No. of Pages : 15



Highly motivated, loyal and satisfied workforce is a key to corporate success. It results in new innovations, increased productivity, improved performance, higher profits and growth for the organizations. In the modern hypercompetitive era, the knowledge and skills of human resource are acknowledged as a source of differentiation from the rivals and creation of a sustainable competitive advantage. Due to such importance, companies spend a lot of time, money and effort in recruiting the right talent and designing attractive remuneration packages to ensure their retention. This act of pleasing their people, however, creates issues in ensuring accurate distribution of net income among all the factors of production, ultimately affecting the company’s overall performance. In this light, the present paper attempts to examine the impact of employee compensation strategy on firm financial performance, using the case of Volkswagen Group. Data for the period 1991-2017 has been collected from the company’s annual reports and analyzed using the regression method. The results show that Volkswagen Group gives the maximum proportion of its net income to its employees in the form of wages, salaries and other benefits. This strategy of delighting its people has a significant positive impact on its financial performance, measured using sales revenue.


How will you react on knowing that an automobile company distributes more than 50% of its net income as compensation to its employees? Shock will be an understatement! You will probably start brainstorming and calculating how much the company pays to its other factors of production and what is left for the shareholders. You will also be concerned about the repercussions of such a decision on the corporate’s performance. However, amidst all these doubts and confusions, you will at a point feel that it is indeed the people at the organization who make the difference. They are the most valuable, as quoted by Mary Kay Ash, “People are a company’s greatest asset. It doesn’t make any difference whether the product is a car or cosmetics. A company is only as good as the people it keeps.”1 With the businesses being subject to ‘hyper-competition’, i.e., an environment characterized by rapid and intense competitive moves of players trying to build advantage for themselves while simultaneously eroding their rivals’ advantage (D’Aveni and Gunther, 1994), the only way out to survive and


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