How Entrepreneurial is Škoda Auto?

Introduction

Entrepreneurial management has become a research area of importance not only to start-up firms but also to large corporations as innovation and creativity now plays a larger role than ever to sustain a competitive advantage in a certain industry. An entrepreneurial manager’s role comprises not only being a visionary, a calculated risk taker and opportunity seeker but also a forecaster, planner and coordinator of innovation (Hisrich and Ramadani, 2016). This paper will analyze Škoda Auto’s entrepreneurial stance of its manufacturing operations, efforts to promote diversity, inclusion and innovation in their workplace as well as its steps to digitize and ‘electrify’ its product portfolio. Proposals and their impacts on the business will be discussed in order to mitigate certain issues that might prevent them from achieving their goals.

Business Overview

Since 1895, Škoda Auto has become a leading manufacturer of cars around the world, with € 7.6 billion recorded in revenues in 2020. Owned by the German firm, Volkswagen, and with its recent appointment of Thomas Schäfer as CEO, the company has sold over 750,000 thousand cars in 2020 despite the COVID-19 pandemic (Škoda, 2020a). While its headquarters and main operations are located in Mladá Boleslav, it also has plants in Kvasiny and Vrchlabí, where the company’s workforce consists of more than 30,000 employees (Statista, 2021). As the firm already has a strong brand and market presence in the Czech Republic, it aims to not only increase its sales in Russia, India and China but also to emphasize its appearance in the Northern African market (Škoda, 2020c). Its Next Level Strategy, which highlights: ‘expanding’, ‘exploring’ and ‘engaging’ their business activities will help them achieve their envisioned goals of 8% return sales and becoming a top 5 firm in Europe for entry-level segment cars by 2030 (Škoda, 2021b).

Entrepreneurship Analysis

After the acquisition of Škoda Auto by Volkswagen Group in 1991, radical changes in its level of entrepreneurship changed not only the way they operate internally, but also the way they market and innovate their products (Škoda, 2016). Thomas Schäfer has developed a vision to where the company would become more digital and sustainably aware (Škoda, 2021b). The vision entails strengthening their position in entry-level segments of automobiles, by releasing new models that would be affordable to the general public. Efforts include electrifying 50-70% of their portfolio of cars and reducing carbon emissions by 50%. Škoda’s developed markets in India and Russia may not be ready yet for such transformation. Therefore, they are making sure that they are managing their risk by still fulfilling their customers’ wants and maintaining their company traditions. Functionality has always been part of their brand and they are ensuring that they keep these standards (Mcllroy, 2021).

While it is true that many automobile corporations are entering e-mobility because it may be seen as ‘fashionable’ to do so, Škoda appears to be genuine and isn’t following the ‘herd’ like others. They are investing heavily in electric trucks, by first testing it in their internal logistics and have a digital lab, with currently over 40 projects that are purely focused on e-mobility, AI, and smart cities (Škoda, 2021d; Škoda, 2021c). The creation of a digital showroom to provide solutions to Covid-19 disruptions, through the newly established innovation centre in Mlada Boleslav displays the high level of intrapreneurship in the company (Škoda, 2021c). This also contributes to the decrease in not only their footprint within their distribution channels but also in a reduction of costs in order to become more ‘lean’ in their operations. Škoda Auto further transforms its, to what is known as, just-in-time (JIT) supply chain to just-in-sequence (JIS) manufacturing through automated robot delivery of batteries from the warehouse directly to the production line in the Kvasiny plant (Kannan, 2005; Škoda, 2020b). Digitization of its operations, distribution and logistics are effectively helping it reduce inefficiencies in their supply chain. The implementation of ‘Extreme Fabric Connect’, which combined multiple networks into one, as well as ‘Extreme Analytics’, which allows the IT team to use metrics in measuring user experience in the whole infrastructure are all innovative ways in which Škoda is improving its management through automation and data (Extreme Networks, 2020).

The company’s growth has been so significant and successful, that trade unions have expressed their concern of Volkswagen attempting to boycott employees’ designs to, instead, match those of their low-cost competitors. While both organizations have denied these allegations, this could put the company’s corporate and innovation strategies in jeopardy. Not only could this impact employee morale but also places constraints to how far employees can innovate. This would then lead to problems in recruitment of talent as the image of the company would demotivate new employees to work for the company. All the efforts that Škoda is implementing to promote innovation and creativity in their workplace could be offset by changes in their corporate culture (Ishak, 2017). However, the goal of making diversity and inclusion an integral component of creating a more open-minded and transparent corporate culture should help combat this issue through higher employee engagement (Adams, 2021; CMI, 2019).

Projections

Škoda’s recent commitments to promote diversity and inclusion in the workplace will play a prominent role in how the company promotes creativity and innovation and thus tackles its problems through lateral thinking (Reynold and Lewis, 2017). If implemented and executed correctly, this could lead to the management solving problems more quickly and creatively, therefore reducing costs and increasing profit in the long run. Having different views on the same issue will allow a team to approach a problem from a different angle and this will not only increase creativity and innovation but also higher employee engagement. As employees are happier with their workplace and the way colleagues are treating them, Škoda is expected to have higher retention rates, which would mean lower expenses for recruitment and retraining for new employees (CMI, 2019).

Škoda’s HR are also joining the efforts to increase corporate intrapreneurship and innovation by implementing programmes to attract new employees and recruit new talent in the company. Student interns that are writing their Master’s or Bachelor’s thesis on Škoda Auto and its operations receive a higher wage than those who don’t (Škoda, 2021a). Student talent pools, career pathways, and providing training programs to current employees give an opportunity for individuals to learn and take responsibility for their actions. Such career developments then positively influence human productivity in the company as it motivates employees that they can grow inter-personally (Hughes, 2019, p.g. 47-80). As the increase in the number of employees since 2015 have coincided with the enforcement of these strategies it would be expected that the workforce will continue to rise in the near future. However, the increase in fixed costs for wages must be accompanied by increases in revenues and growth. Therefore, with innovation-promoting strategies set in place, profit margins are also expected to grow.

Figure 1: Number of Škoda Auto Employees from 2005 to 2018 (Carlier, 2021).

Figure 2: Profitability of Škoda Auto from 1998 to 2019 (Helgi Analytics, 2020).

With the implementation of JIS in addition to the JIT techniques already set in place, this gives space for Škoda to replace work that can be automated and increase efficiency in the production system through reductions in processing time and ‘motion’, which is one of the ‘seven wastes’ of JIT (Johnsen et al., 2019, p.g. 206). Reduced costs through changes in their supply chain as well as using e-trucks for their internal logistics and distribution channels to dealers in the country should increase profitability for the firm in the long-run. Turning to renewable resources in their supply chain will help them achieve their goal of reducing their carbon emissions by 50-70% by the year 2030. Alternating to a single virtual IT infrastructure that connects its assembly warehouse and its manufacturing base will reduce ‘waiting’ times through the reduction of human errors. Additionally, the IT team can focus on innovating the system even more instead of putting their energy into repairs that can instead be automated or otherwise decreased.

Proposals

While Škoda has now become a member of the Pride Business Forum and has signed its EU Diversity Charter in 2019, its real results will only be achieved if their goals are verbal, measurable and time-bound (Medina, 2019). While Škoda might be more ‘diverse’ in numbers, it doesn’t mean that all individuals are going to get treated well, which is equity, a core need of our brains. Our limbic system makes us naturally and unconsciously look at people that are different to be a threat to us for survival (Medina, 2019; van Wolkenten et al., 2007). Instead of stating, simply, that they “value diversity in their workplace”, they should set specific aims and dates by when they would want to achieve them. For instance, they could set “achieving racial and gender equity in our hiring process in 3 years” as a suitable goal. In order to achieve this, they can hire third-party auditors to collaborate with the organization’s HR department in order to identify equitable-related issues in the workforce. This will reduce the tendency of HR to commit certain biases such as confirmation or optimism bias (Hunziker, 2021). However, not only is this costly but also may receive certain criticism from the department as they might believe that they do not require the help of external auditors and that they do not exhibit such biases in their work.

While the UK branch has its own annual gender pay gap report that takes into account Volkswagen as a whole, specific details about the Czech Republic, where the headquarters of its operations is located, is not published (Volkswagen, 2020). In consequence, producing and publishing such a report just for the Czech Republic would not only incentivize Škoda to actually achieve their goals due to public awareness but also become a tool in the way they measure their progress. Corporate bureaucracy and budget constraints might not only increase the time to assemble a team for this report but also inhibit it from actually happening if the upper management is not convinced that it is essential. As a result, implementing this proposal will help achieve the diversity and inclusion goals outlined in the paragraph above.
The implementation of inclusion and diversity, and innovative-promoting strategies to promote growth have little impact if their creative corporate culture is not a driver of that innovation and creativity (Fiordelisi et al., 2019). Škoda’s subordination, under Volkswagen, dictates a low-cost segment in which they should compete under (Pavlinek, 2010, p.g. 111). Changing the vision of where Škoda should be competing in, even if it takes away sales from Volkswagen’s portfolio of other car manufacturers, will help achieve the wanted change in corporate culture. Even though this will receive controversy regarding Škoda’s political position in the car industry, creativity, which already is exhibited in the people, will become a driver of that wanted growth through implementation of those ideas—innovation.

Proposal Validation

Specifying their goals in their efforts to promote diversity and inclusion will increase productivity of their workforce through increases in employee engagement, creativity and innovation, better problem-solving and decision making, better reputation and consequently profits in the long run (CMI, 2019). Increases in these factors will lead to further increased profit margins (through reduction in product costs and materials), just like the implementation of JIS and JIT in their production lines (Kannan and Tan, 2005). The more diverse Škoda is, the more customers it can reach, the more quality output, and the more creativity in the team (Dennett, 2021).

This will, especially, be of importance to the company as it expands its operations to Northern Africa, where cultural differences will be most apparent (Škoda, 2020c). Once the company attains its verbal, measurable, and time-bound goals, the company will have a more diverse team that might require not only cultural awareness but also re-training. Czech Republic has a more individualistic culture than those of its business counterparts in Northern Africa. This means that countries in the North African region might have a bigger tendency to work in groups and emphasize team-work than Czechs. Additionally, power-distance, which is the extent to which the “less powerful members of a society accept and expect that power is distributed unequally”, is lower in the Czech Republic and higher than that in Northern Africa. Hierarchy and isolation between lower and higher management positions is mostly expected in the new expanded region, unlike in Czech Republic (Hofstede, 2011).

Figure 3: Cultural Dimensions of Czech Republic (Hofstede Insights, 2021)

Figure 4: Cultural Dimensions of Egypt (blue), Algeria (purple), Morocco (green), and Tunisia (orange) (Hofstede Insights, 2021)

Creating a gender pay gap report specifically for Škoda will help it become a more socially aware firm and become more reputable in international markets, for where it wants to enter. Helping its reputation will help its brand and thus the sales of its products. While this may increase wage costs in the short run, this will be covered by the talent acquired to increase growth in the firm. Creating equitable pay standards for both males and females will make it more attractive for either side to apply for positions in the company, especially in the STEM industry (Beede et al., 2011).

Changing the subordination inflicted by Volkswagen will create independence for Škoda and allow it to compete in segments that, otherwise, is dictated not to enter. As the team is not constrained to just make their models better but also allows them to use their lean and efficient supply chains to create products that would compete with other luxurious automobile brands. Additionally, after the corporate culture is changed in order to allow lateral thinking processes to occur, this will allow Škoda to approach problems from a different angle to gain a competitive advantage. Creating a culture, in which it is not only ‘okay to fail’ but also implements lateral thinking will help the organization to look for better models, instead of trying to make the current ones work better (Fiordelisi, 2019; Reynold and Lewis, 2017). If Škoda enters the luxurious segment of the car industry, this creates additional competition in the market, which incentivizes other manufacturers to either be more innovative or decrease their prices for their products—both benefiting the consumers.

Conclusion

Škoda Auto’s growth has been significant since its acquisition of Volkswagen 30 years ago. Its promotion of intrapreneurship was displayed through its DigiLabs and innovation centers for employees—which then led to digitization of its marketing operations and further improvements in their JIT and JIS supply chains and IT infrastructure. Its drive to improve diversity and inclusion in the company should help further promote creativity, however, must be careful of Volkswagen inhibiting innovation as new designs might compete with more expensive segments of its portfolio. Lateral thinking will only occur if its management does not constrain employees to implement their ideas into innovations. Its recruitment and training programs will further increase diversity in the workplace and increase productivity and profitability of the firm in the long-run. Hofstede’s cultural dimensions should be taken into consideration as the level of diversity in the company will increase. Proposals include: making their goals more verbal, measurable, and time-bound, producing a gender pay gap report just for the Czech branch, and managing Škoda’s subordination to not inhibit growth and creativity in the firm. 

References

Adams, H. (2021, May 25). Škoda auto recommits to workplace diversity and Inclusion: Diversity & Inclusion (D&I). Sustainability Magazine. Retrieved December 2021, from https://sustainabilitymag.com/sustainability/skoda-auto-recommits-workplace-diversity-and-inclusion.

Beede, D. N., Julian, T. A., Langdon, D., McKittrick, G., Khan, B., & Doms, M. E. (2011). Women in STEM: A gender gap to innovation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1964782

Carlier, M. (2021, July 21). Employees of Skoda Auto Company. Statista. Retrieved December 2021, from https://www.statista.com/statistics/267266/employees-of-skoda-auto-company-since-2005/.

CMI. (2019, July 3). The five business benefits of a diverse team. CMI. Retrieved December 2021, from https://www.managers.org.uk/knowledge-and-insights/listicle/the-five-business-benefits-of-a-diverse-team/.

Dennett, Raphael. “Human Resources, Diversity and Equity.” Managing Entrepreneurially, 4 Sept. 2021, University of Exeter, UK. Lecture.

Extreme Networks. (2020, September 4). The history of ingenuity – driving the innovation with škoda auto. Extreme. Retrieved December 2021, from https://een.extremenetworks.com/97010-the-history-of-ingenuity-driving-the-innovation-with-skoda-auto.

Fiordelisi, F., Renneboog, L., Ricci, O., & Lopes, S. S. (2019). Creative corporate culture and innovation. Journal of International Financial Markets, Institutions and Money, 63, 101137. https://doi.org/10.1016/j.intfin.2019.101137

Helgi Analytics. (2020, September 23). Skoda auto – profit margins. Helgi Library. Retrieved December 2021, from https://www.helgilibrary.com/charts/skoda-auto-profit-margins/.

Hisrich, R. D., & Ramadani, V. (2016). Foundation of Entrepreneurial Management. Springer Texts in Business and Economics, 1–15. https://doi.org/10.1007/978-3-319-50467-4_1

Hofstede, G. (2011). Dimensionalizing Cultures: The Hofstede Model in Context. Online Readings in Psychology and Culture, Unit 2. Retrieved December 2021, from http://scholarworks.gvsu.edu/orpc/vol2/iss1/8

Hofstede Insights. (2021). Compare countries. Hofstede Insights. Retrieved December 2021, from https://www.hofstede-insights.com/product/compare-countries/.

Hughes, C. (2019). Chapter 4 Using Workforce Inter-Personnel Diversity as a Unique Talent Management System Component. In Workforce inter-personnel diversity the power to influence human productivity and career development (pp. 47–80). essay, Palgrave Macmillan.

Hunziker, S. (2021). Enterprise risk management: Modern approaches to balancing risk and reward. Springer Gabler. in Springer Fachmedien Wiesbaden GmbH.

Ishak, W. (2017, September 28). Creating an innovation culture. McKinsey & Company. Retrieved December 2021, from https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/creating-an-innovation-culture.

Johnsen, T. E., Howard, M., & Miemczyk, J. (2019). Purchasing and Supply Chain Management: A sustainability perspective. Routledge.

Kannan, V. (2005). Just in time, Total Quality Management, and Supply Chain Management: Understanding their linkages and impact on business performance. Omega, 33(2), 153–162. https://doi.org/10.1016/j.omega.2004.03.012

Mcllroy, J. (2021, July 22). New Skoda Enyaq: The Complete Guide to Skoda’s first Bespoke Electric Car. Auto Express. Retrieved December 2021, from https://www.autoexpress.co.uk/skoda/enyaq/109116/new-skoda-enyaq-complete-guide-skodas-first-bespoke-electric-car.

Medina, P. (2019, September 12). Lets stop talking about diversity and start working towards equity. YouTube. Retrieved December 2021, from https://www.youtube.com/watch?v=deYUUfak08Y.

Pavlínek Petr. (2010). Post-1995 Success and Challenges of the Early 2000s. In A successful transformation?: Restructuring of the Czech automobile industry (pp. 105–112). essay, Physica-Verlag Heidelberg.

Reynolds, A., & Lewis, D. (2017, March 30). Teams solve problems faster when they’re more cognitively diverse. Harvard Business Review. Retrieved December 2021, from https://hbr.org/2017/03/teams-solve-problems-faster-when-theyre-more-cognitively-diverse.

van Wolkenten, M., Brosnan, S. F., & de Waal, F. B. (2007). Inequity responses of monkeys modified by effort. Proceedings of the National Academy of Sciences, 104(47), 18854–18859. https://doi.org/10.1073/pnas.0707182104

Volkswagen. (2020). Gender pay gap reports. ŠKODA UK. Retrieved December 2021, from https://www.skoda.co.uk/discover/gender-pay-gap.

ŠKODA. (2016, June 23). Skoda VW 25 years. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/skoda-world/heritage/two-companies-write-one-history/attachment/skoda_history_01-2/.

ŠKODA. (2020a). Škoda Annual Report. Škoda Storyboard. Retrieved December 2021, from https://cdn.skoda-storyboard.com/2021/03/210324-10-00_Annual_Report_2020.pdf.

ŠKODA. (2020b, September 29). Robot delivers just-in-sequence parts directly to the production line at the Škoda auto plant in Kvasiny. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/press-releases/robot-delivers-just-in-sequence-parts-directly-to-the-production-line-at-the-skoda-auto-plant-in-kvasiny/.

ŠKODA. (2020c, December 18). Škoda auto appoints Arwa Oeljeklaus to lead operations in North Africa. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/press-releases/skoda-auto-appoints-arwa-oeljeklaus-to-lead-operations-in-north-africa/.

ŠKODA. (2021a). Entry new markets. ŠKODA Career. Retrieved December 2021, from https://www.skoda-career.com/work-at-skoda/detail-pozice/17383.

ŠKODA. (2021b, June 25). Škoda in 2030? more electrified, more digital. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/skoda-world/next-level-strategy-2030/.

ŠKODA. (2021c, March 31). Škoda Auto Launches Virtual showroom as pilot project. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/press-releases/skoda-auto-launches-virtual-showroom-as-pilot-project/.

ŠKODA. (2021d, November 29). Škoda Auto Trials Electric Trucks in internal logistics. ŠKODA Storyboard. Retrieved December 2021, from https://www.skoda-storyboard.com/en/press-releases/skoda-auto-trials-electric-trucks-in-internal-logistics/.