Firm-specific needs

The following section will investigate further the specific circumstances within Volvo Group that justify its selection of an assertive standardization management approach.

world, embracing an emphasis on emerging markets such as Asia. Its increasing presence in emerging markets comprises a predominant feature of Volvo’s growth strategy (Ambrutyte, 2014). However, in order to gain access to those markets, Volvo is required to take into account their particular needs and objectives, which basically translates into an availability of lower-cost products and hence adjustment of its product offerings. In other words, along with offering a broad product range, Volvo finds itself facing a need for major cost reductions in order to capture the emerging Asian markets, leading the company to search for economies of scale and scope—which again links back to its extensive utilization of standards and standardization.

Hence, Volvo, which intends to capture emerging markets but at the same time to retain its premium brand, pursues a horizontal, acquisition-driven expansion approach. This strategic direction was commenced in the 1970s when the merger with Renault took place, with the aim of achieving economies of scale (Ambrutyte, 2014). During the past decade, international acquisitions such as Renault Trucks, Mack, UD Trucks, and Shandong Lingong Construction Machinery (SDLG)⁶ have been realized in order to provide the company with access to different market niches, from high-quality/expensive trucks to lower-quality/cheaper trucks. With the intention of increasing market coverage, Volvo is leveraging its brand portfolio to address various aspects of customer buying behavior.

Manager D: “You can’t make a cheap Volvo with [poor] quality, then you would ruin the brand name. Though it doesn’t need to be bad just because it’s cheaper;

it’s just simpler. But you can’t make a simple Volvo. Then it’s better to acquire a brand name that already exists and make those simpler trucks in that market.

China is an important market, for example.”

Manager F, Corporate Standards: “Especially now, with the new market in Africa, where we plan to sell the lower-cost truck, cross-brand standardization is a big challenge. We have been making the best trucks in the world, but now we want to make cheaper trucks as well. What shall we change then? Shall we change our requirements, or shall we use other standards? That is a major challenge.”

Manager B, Corporate Standards: “Driving cross-brand standardization at the right level is very tricky when buying companies. What is to be standardized and

6 Volvo heavily invested in SDLG (initially in 2006 and then again in 2007) in order for SDLG to double its output for Asian markets. In other words, this was not a complete acquisition, but could be considered a partial one.

what [is] to be unique, where is the borderline between corporate standards and brand management? Brand distinction vs. commonality and standardization is a very tricky thing when you have a multi-brand company.”

Nowadays, the company is “realigning itself from being a decentralized brand-by-brand organization, to delivering on a brand portfolio perspective” (Volvo Group Annual Report, 2014). Under those circumstances, Volvo is urged to utilize corporate standardization in order to prompt multi-brand coordination and cost efficiency. Through corporate standards, the multi-brand company aims at boosting economies of scale and scope (which are urgently needed due to the company’s broad product offerings) in order to attain such breadth of cost-efficient, and at the same time premium, products, through corporate standardization management.

A final reason why corporate standardization is prioritized so highly in Volvo relates to its relationships with suppliers, which are shaped in accordance with the company’s needs.

6.9.3 Relationships with suppliers

As pointed out in earlier discussions, Volvo manufactures and delivers a great variety of products. This means that Volvo requires access to a number of suppliers, and aims to ensure its pool of suppliers are very familiar with the company’s standards and specifications and produce large volumes, thus achieving lower costs. In that context, it is relevant for Volvo to adopt an assertive standardization approach and spread its standards specifications; that is, diffusion of its standards to enable easier coordination with a number of suppliers and subsequently boost cost efficiency and quality. Volvo is increasingly delegating development of complex parts to suppliers (Ambrutyte, 2014), which highlights the company’s intention to work closely with suppliers.

Hence, the strategic rationale is for the company to benefit from the diffusion and establishment of its technical standards among other market participants, including suppliers, business partners, and even competitors. Communication with suppliers is much more efficient when Volvo Group’s specifications and requirements entail well-known standards that are espoused by other firms as well.

Manager B, Corporate Standards: “It’s easier to find suppliers that can fulfill our requirements, that’s one of the benefits if your requirements, your standards, are

well-known among suppliers. We don’t want to change our requirements since they are connected to our product. But also we don’t want to have to train suppliers. A well-known standard makes it easier.”

Manager F, Corporate Standards: “So we actively work internationally, to make sure that we have the same language, to make sure that the drawings are understood. That’s a basic rule for standardization, that we need to have the same way of showing what we want to get [from] the product.”

Furthermore, the adoption of common component standards by a number of firms leads to the production of those components in greater volumes, resulting in suppliers’ economies of scale, which benefits Volvo Group with lower component prices. Taking the above into account, Volvo is not hesitant to even enhance cooperation with its competitors towards the creation of mutually adopted standards—which encompasses a well-thought-through strategy of simultaneously embodying elements of cooperation and competition (that is, deployment of a coopetitive strategy in regard to standards and standardization).

Consequently, other companies can also take advantage of the abovementioned lower prices, which provides justification for other market participants to embrace and adopt Volvo Group’s internally developed solutions as part of widely adopted industry or international standards. Enjoying economies of scale by following international standards is arguably a more effective strategy than generating solely intraorganizational economies of scale, due to network effects within the whole industry. For instance, the cost and quality effects on suppliers’

deliveries, following commonly accepted standards can greatly increase due to the dynamic magnitude of the whole industry. Through a prudent pursuit of internal and external standardization, Volvo is capable of strategically generating economies of scale within the company and the whole industry—which increases the chances of success of an assertive standardization management approach.

Lastly, such concentration of suppliers on producing greater amounts of a smaller variety of components allows them to focus their capabilities and improve them. This can be a driving force towards a greater degree of specialization (for instance, among suppliers, or more broadly among any firms), leading to higher quality along with lower costs.

Standardization engineer A: “So, just by increasing the volumes [manufactured by the supplier], we can decrease the cost.”

Accordingly, as the use of mutual standards increases compatibility among the different parts of the value chain and allows them to collaborate effectively, commonly adopted standards hold the power of serving as “loose contracts” or established agreements among various market participants—and hence lead to smoother, more straightforward (industry-wise) business transactions, in an era of high technological uncertainty and interdependence. Subsequently, Volvo does not hesitate to promote and enhance its tactic of jointly adopted industry standards, which function as depositories of knowledge on how partners (such as manufacturers and suppliers, or coopetitors, in broader terms) can efficiently work with each other.