How Škoda Changed Gears

My recent blog about manufacturing trends in Central and Eastern Europe sparked a couple of comments about Škoda Auto, a Czech Republic-based carmaker and wholly-owned subsidiary of the Volkswagen Group. I thought it deserved some follow-up attention.

Škoda, with about 110 years of history under its hood, has essentially recreated itself this past decade. It has shed its image as a lower-quality regional player with cheap driving alternatives and become a well-touted brand earning worldwide “car of the year” accolades for its design and safety standards.

Škoda's success isn't only conceptual. A quick look at recent sales and profits may cause other automakers to drool as they try to revamp strategic operations and recover from the recession. So far this year, Škoda has delivered 373,400 vehicles worldwide from January to May, a 21.5 percent increase from the comparable 2010 period, when the company shipped 307,400 cars, according to a Volkswagen press release.

The month of May, in particular, was noted as the company's best month ever and marked the third successive monthly record. Year-over-year numbers are equally impressive. Sales for Škoda Auto Group in 2010 jumped to about 8.7 billion euros ($12.4 billion), up from 7.1 billion euros in 2009 (about $10.2 billion). Gross profit rose to 1.2 billion euros ($1.7 billion) last year from the 816 million euros (about $1.2 billion) recorded in 2009, according to company documents.

Geographically, too, Škoda has extended its footprint far beyond its home base. Eastern Europe represented only 9.7 percent of 2010 sales, and Central Europe garnered 15.8 percent, according to its 2010 annual report. While Western Europe accounted for a lion's share of 2010 sales (43.7 percent), Škoda's presence in Asia (30.8 percent of sales) is worth watching. China and India are targeted sweet spots for the carmaker's near-term growth strategy, with places like Russia and Turkey also quickly accelerating (pun intended).

While its affiliation with Volkswagen, a well-respected innovator with a focus on high-quality brands, may have had obvious influence on Škoda's recent momentum, it goes to show what's at stake for other manufacturers. Those that can successfully transition from low-cost, volume assembly to efficient, quality-oriented production could gain significant global traction. As I wrote last week, IDC is seeing Central and Eastern Europe manufacturers mature in this direction, and there could be implications for many electronics OEMs and suppliers. (See: Manufacturing Matures in Central, Eastern Europe.)

So how did Škoda make this leap? I have a couple of ideas.

Clearly, partnering with Volkswagen has delivered benefits that are difficult to list in just one blog post. Venturing a guess, I would say Volkswagen's R&D, engineering, and design activities have given Škoda a considerable boost. And rebranding itself as “Simply Clever” may have aligned corporate core principles with desired customer appreciation.

But Škoda has also emphasized its quality, technology innovation, and skilled labor force development in other ways. First, it has actually committed to meeting its strategic growth goals via the “transformation of the current business model toward a clear price/value focus of the Škoda-brand products,” as stated in its annual report. It plans to achieve this by:

  • improving efficiency
  • reducing complexity
  • optimizing investment
  • forming a global team of top talents
  • mobilizing employees.

That may sound like lip service to make shareholders happy, but the company has already taken a number of steps in fulfilling this objective. For instance, in 2000, the vocational technical college in Mladá Boleslav was joined to the company’s own college, where Bachelor's and Master's degrees are both respected and state-approved. Similarly, plans are in the works to introduce doctorate and foreign language courses, with a focus on business administration, marketing, sales, finance, and environmental management, according to Volkswagen. Škoda has invested more than 15 million euros ($21.5 million) in its Na Karmeli skills training facility, making it the largest corporate training center in the Czech Republic.

Theoretically, if Škoda is willing to make this kind of investment in its people, other projects will be prioritized along similar lines. The payback, too, will be evident in its design centers, supply chain management capabilities, and manufacturing shop-floor operations. It's anyone guess as to whether Škoda will be as successful as it hopes. But it does appear that reaching a certain stage of maturity is making the company a timeless example for others.

9 comments on “How Škoda Changed Gears

    July 8, 2011

    Thanks Jennifer.  This is fantastic background on the Skoda success story.  In Europe one only has to observe the number of Skodas on the roads and in people's driveways to realize Skoda is a vastly improved company these days.  I wonder if we will ever see a similar success story coming out of Russia.  Everyone knows Russia is very successful exploiting its natural resources (oil and gas) but I am yet to see any worldclass design and manufacturing companies emerge from Russia.  Can anyone out there shed any light on this quandary?

  2. Nemos
    July 8, 2011

    “So how did Škoda make this leap?” Skoda combines the very good value for money for its products with the quality , because after the acquisition from Mercedes group , the manufacture quality changed to better for the Skoda.

    (Skoda Funny video)

  3. Anand
    July 10, 2011

    “Škoda has invested more than 15 million euros ($21.5 million) in its Na Karmeli skills training facility, making it the largest corporate training center in the Czech Republic”


     Thanks for the post. I am sure this effort by Skoda to impart skills to its employees will definitely benefit it, because employees are the key part of the company. If employees are happy, their productivity will automatically increase.

  4. Daniel
    July 11, 2011

    Jennifer, Social commitments and valuing employer’s contributions are good in long term run, for any industry. This can help the industry to hold employees with them and creating a social awareness.

  5. stepanrehak
    July 11, 2011

    Very good post. You did a great job. I can confirm that we are gearing up and investing more in our people.

  6. Jennifer Baljko
    July 11, 2011

    Stepanrehak – Thanks. Assuming if you can confirm info, you may be associated with the company. If so, in what capacity? Can you tell us more about the “gearing up and investing in people” plan? Which areas are getting the most attention in terms of boosting people power and, generally, which corporate areas have become vital investment sweet spots? Also, any thoughts on broader manufacturing trends in Central and Eastern Europe, particularly on this idea of moving away from low-cost volume production to efficient, high-quality manufacturing? It appears that Škoda is both going for increased volume by breaking into new regions, but that its overall approach has shifted from low-cost local products to worldwide quality branding. Thanks in advance for any additional comments you can provide. – Jenn

  7. stepanrehak
    July 12, 2011

    I do work for Skoda in HR department as a Recruitment Specialist. For this year we are planning to recruit more then 750 people for administrative positions and even more next year. This is part of Simply Grow strategy which is on since start 2011. Skoda is planning to sell up to double the amount of car sold last year – 762 000 ww. Skoda is massively investing in people. You mentioned our University but also everyone has a chance to work for 2 – 3 years in China, India, Russia or in VW. I can see that Skoda and people around me are focusing on this 3 countries as this is our chance to be bigger and more recognisable. I dont think that we have more regions left. We are curently operating in 103 countries.

    I am sorry but I dont have information about manufacturing as I am responsible for Marketing, Sales and HR departments.

    I hope that you have more information.


  8. Jennifer Baljko
    July 13, 2011

    stephanrehak: Thanks for sharing all these details. Sounds like a innovative and progress-minded approach and an important way to better position the company for future growth. Actually, it's refreshing to hear about a company doing something like this…so many companies are still shaking off the recession and perhaps way too slowly building back their workforces/making similar investments. Keep us posted on the Simply Grow program.


  9. Himanshugupta
    July 14, 2011

    this is a good example of why investing in employees is necessary. Every company and sector is different and fresh graduates may not come under the company's growth strategy unless taught. VW's support has been a crutial factor for Skoda to come back to profit, IMO. Its long way for Skoda to keep its feat in India and other countries as the competition is hard but i think differentiation is the key.

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