Skoda Auto Case Study

a) Identify two internal stakeholder groups suggested in the above case study

Two internal stakeholders suggested in the Skoda case study include the employees of Skoda and the shareholders of Volkswagen which is the parent company.

b) Explain one conflict that exists between the different stakeholders in the case study

Stakeholders sometimes have different opinions regarding matters to do with the business they’re involved with. A conflict that exists at Skoda is the workers demanding a pay in benefits increase. This would affect the stakeholders in different ways. The employees would want to increase their wages, salaries, and other financial benefits which would reduce the profits of the business. The shareholders of Volkswagen want a good dividend, which also comes from the profits. Also, a high declared dividend because of high profits will maintain or increase the share value – potential capital gains. Another stakeholder with a conflict here would be the directors or senior management, on the other hand, maybe looking towards further expanding Skoda by opening more factories, and/or investing in more modern equipment or machinery to make them more efficient. This would also come out of either capital reserves, or profits. Customers, who would mainly be foreign buyers, may not be prepared to pay an increased price caused by the increase in labor costs. The Czech government would also be very concerned because Skoda is its largest source of foreign currency through its exports. Any industrial action would have a disastrous effect on Czech exports with a knock-on effect on the balance of payments. Also, it would raise the unemployment figures which in turn would cause political unrest, social problems through a rise in crime, and the government may have to pay benefits to the unemployed. On the other hand, the government would be concerned that a pay increase to such a large employer would lead to inflation. Any suppliers that are providing materials or supplies to Skoda would also face difficulties if industrial action took place. From the local community point of view, there could be high unemployment which may lead to an increase in crime and political unrest, as mentioned, and the unemployed could face psychological issues like depression. The workers may also become de-skilled if unemployed for a long time.

c) Discuss how the conflict outlined in your answer above could be minimized

Stakeholder mapping could be used by the managers at Skoda in order for them to examine how to sort out the conflict between stakeholders. The following map is one Skoda could possibly use:
(above)

Priority has to be given to the employees and the shareholders’ representatives, as the employees and shareholders have a high level of interest and power. The main conflict is between the owners who want to keep the costs low, and the workers who want a pay increase. This could be overcome by giving the workers a pay increase based on productivity, which would be a good incentive and motivate them more. Although this would increase the costs, the output should also be increasing, leading to more income from sales. The process should begin with negotiations being opened up between the company and the workers’ representatives. This would enable both sides to put forward their respective points of view or perspectives, while also realizing that it is in everyone’s benefit to find a solution quickly. The process should continue with ongoing or regular communication between the company and the employees in order to keep them up to date with developments. Employees are more likely to agree to a solution such an increase based on productivity is they are kept informed on the situation of the business. The company could also motivate the employees by possibly giving them staggered benefits, through a schedule of benefits for the next few years, if there is no industrial action. Skoda being the country’s largest exporter has significant influence on the Czech government. If they could persuade the government to reduce taxation slightly, then they could negotiate a lower wage increase with the workers. However, lower tax throughout the country leads to higher disposable income, which in turn leads to inflation, which the government tries to prevent from being too high. Another solution could be buying from cheaper suppliers, which would reduce materials costs, which could allow labor costs to increase, while having the same cost of production per car. However, the quality may not be the same standard which will not be in Skoda or Volkswagen’s interest. Another disadvantage to changing suppliers is that Skoda has a good relationship with its existing suppliers, a number of whom may be in the local community, which could cause resentment within the community. Also, there’s always a risk of changing from a regular supplier to an unknown one. If the pay increase went ahead, it would lead to inflation, and the government could take action by increasing the interest rates which would persuade people to invest more, and spend less, but this has a negative effect on fixed incomes, and also stops people buying in credit. News of industrial disputes within a company is negative; therefore it may be in Skoda’s interest to carry out a public relations campaign to reassure its customers worldwide of the reliability of their product. The result of the negotiations will depend on the strength of the employee representatives or trade unions and the board of senior management.
To conclude, a slight reduction in taxation, a public relations campaign, and increased motivation of the employees through benefits and pay dependent on productivity, should help minimize stakeholder conflict through negotiations and satisfying both major stakeholders, the employees and shareholders. Employees would be getting a higher pay, the company should be producing more whilst the pay increase being subsidized by the reduction in taxation, implemented by the government who don’t want to see the conflict continue, because the company is a major exporter.