TOWS Analysis is an effective way of combining a) internal strengths with external
opportunities and threats, and b) internal weaknesses with external opportunities and threats
to develop a strategy.
Volkswagen (VW) was chosen because it demonstrates how a successful company experienced great difficulties in the early 1970s, but then developed a strategy that resulted in an excellent market position in the late 1970s. The TOWS Matrix shown in Figure 1 will focus on the crucial period from late 1973 to early 1975. The external threats and opportunities pertain mostly to the situation VW faced in the United States, but a similar situation prevailed in Europe at that time.
opportunities and threats, and b) internal weaknesses with external opportunities and threats
to develop a strategy.
Volkswagen (VW) was chosen because it demonstrates how a successful company experienced great difficulties in the early 1970s, but then developed a strategy that resulted in an excellent market position in the late 1970s. The TOWS Matrix shown in Figure 1 will focus on the crucial period from late 1973 to early 1975. The external threats and opportunities pertain mostly to the situation VW faced in the United States, but a similar situation prevailed in Europe at that time.
Weaknesses and Threats (WT)
A company with great weaknesses often has to resort to a survival strategy. VW could have seriously considered the option of a joint operation with Chrysler or American Motors. Another alternative would have been to withdraw from the American market altogether. Although in difficulties VW did not have to resort to a survival strategy because the company still had much strength. Consequently, a more appropriate strategy was to attempt to overcome the weaknesses and develop them into strengths. In other words, the direction was toward the strength-opportunity position (SO) in the matrix shown as Figure 1. Specifically, the strategy was to reduce the competitive threat by developing a more flexible new product line that would accommodate the needs and desires of the car-buying public.
Weaknesses and Opportunities (WO)
The growing affluence of customers has resulted in 'trading up' to more luxurious cars. Yet, VW had essentially followed a one-model policy which presented a problem when the design of the Beetle became obsolete A new model line had to be introduced to reach a wider spectrum of buyers. In order to minimize the additional costs of a multi product line, the building block principle was employed in the design of the new cars. This allowed using the same parts for different models that ranged from the relatively low-priced Rabbit to the higher priced Audi line. Another weakness at VW was the rising costs in Germany. For example, in 1973 wages and salaries rose 19 per cent over the previous year. Similarly, increased fuel costs made the shipping of cars to the United States more costly. This situation favored setting up an assembly plant in the United States. However, this also created some problems for VW because it had no experience in dealing with American organized labor. To overcome this weakness, VW's tactic was to recruit managers from Detroit who were capable of establishing good union relations.
Strengths and Threats (ST)
One of the greatest threats to VW was the continuing appreciation of the Deutsche Mark against the dollar. For example, from October 1972 to November 1973 the mark appreciated 35 percent. This meant higher prices for the buyer. The result, of course, was a less competitive posture. Japanese and American automakers obtained an increasingly larger share of the small-car market. To reduce the threats of competition and the effects of the unfavorable exchange rate, VW was forced to build an assembly plant in the United States. Another strategy for meeting competitive pressures was to build on VW's strengths by developing a car based on advanced design technology. The result of this effort was the Rabbit, a model with features later adopted by many other car manufacturers.
FIGURE 1
