Volkswagen Story
Volkswagen Case Study
To say that Volkswagen got stuck in the quagmire of its own
ambitions would be to state the obvious. What’s more intriguing is the reason
why it fell in such a trap? Further, what could have been done to save
Volkswagen from public disgrace of such a colossus scale?
[i]The violations, which affected nearly
half a million vehicles, could result in as much as $18 billion in fines based
on the cost per violation and the number of cars. Criminal prosecution is also
possible. Affected are diesel versions of the VW Jetta, Golf, Beetle and Passat
and the Audi A3.
Let us dig deep into various factors that led to such a huge
loss. Unlike an odd case of technical-glitch which is common in automobile
industry, Volkswagen deliberately cheated its patrons. It traded trust for growth.
Ironically, a company with an enviable past and a formidable present got
blinded by its unbridled ambitions. Volkswagen, the German word which
translates to ‘car for the masses ’, sounds vague and antithetical through the
lens of the beleaguered ‘defeat-engine’.
First and foremost it is a case of management failure.
Clearly, the top management failed on more than one accounts. The most glaring
was its failure to steer the company in the right directions. So, what can
drive the management of a firm into cheating people on such a large scale? Was
it cash-starved? Well, having more than [ii]€351.2 billion in its net-assets. Was there any lack
of talent? The company has the best of the engineers and researchers working
for it 24/7. Was there any urgency to make a mark in the arena of automobiles? No
valid reasons for that. The company had an enviable past. It introduced a
marquee of cars from Bentleys to Audis. Volkswagen stood second only to Toyota.
But, the management was in the tearing hurry.
Secondly, the management failed to chalk out its priorities. Having
carved a niche in the field of automobiles, It was time to cast aside the
arcane values of ‘winning-by-numbers’ and to adopt a more holistic approach of
being ‘driven-by-values’. The company management would have done well to
initiate some internal changes in its style of management- most importantly,
fostering a culture of open two-way communication.
The buzz around the so called ‘defeat-engine’ is just the
tip-of-the-iceberg. The prevailing environment and the management practices[iii]
were the breeding grounds under the surface. Apparently, the firm found it hard
to break the chains of old culture when slaves of the concentration-camps used
to work as lame-laborers. They nurtured such a system where there were
iron-walls within teams. Open discussions were discouraged. In contrast,
General-Motors’ management fosters open discussions as corroborated by many [1]reports.
So who is to blame? The answer is not obvious. While many top
executives including the CEO of the company resigned after the upheaval, it
would be presumptuous to say that they were the sole culprits.
The causes of this scandal are located within the leadership
philosophy of the company. As cited by various [iv]magazines
and reports, the company espoused and promoted a ‘no-failure’ culture which
gives inordinate emphasis on perfection at the cost of excellence.
Unfortunately it steers employees to focus on ‘ends’ irrespective of the ‘means’.
Clearly, it was more of a question of the ‘water-in-the-pond’ than a
‘few-nasty-fishes-swimming-in-it’.
It is worth referring to the examples of Nokia and Johnson &
Johnson to drive home the point.
[2]The sources of corporate failure are often prosaic and
avoidable. Nokia’s experience is a case in point. Nokia faced a similar challenge. [3]After
experiencing an exponential growth during 90’s, the graph plummeted. Sure, it
enjoyed the first entrant advantage later it experienced the inevitable fall. The
new entrants such as Google and Apple outsmarted Nokia. Why?
Nokia’s problem was
not lack of [4]innovation
but inability to adapt. An impediment to adaptation is growth figures. Instead
of figuring out how to adapt to the new market conditions where new entrants
came up with more user-friendly mobiles, Nokia’s quest was how to get top
market share.
Similarly, when clean
diesel was the biggest question, Volkswagen embarked upon the strategy of
increasing its market share albeit by using spurious practices. Johnson and
Johnson, on the other hand presents a counter example. Driven by the credo that
puts customers, employees and shareholders’ interests in that strict order, it
shows how culture of the company can be an enabler for sustainable growth. The
way [5]CEO
Burke handled Tylenol capsule case is a textbook example of integrity and
steadfastness.
Volkswagen compares very poorly in the way it handled current
face-off. The CEO projected it as if it was a case of some everyday oversight.
Mimetic isomorphism can never foster excellence in the longer run.
Sometimes growth
targets elude the real issues. When figures on the graph become the sole
driving force, morality and integrity become optional. Arrogance often blinds
intelligence.
It does not take a genius to rebuff the hypothesis that
defeat-engine was just an oversight. It is surprising to note that so many
engineers, researchers; top-executives turned a blind eye to such an obvious
malpractice. They were more focused at doing things right rather than doing the
right things. It’s a clear case of [6]disruptive
innovation.
Blinded by desire to outsmart their competitors, Volkswagen
resorted to game the system. It did speed up their journey to the top. But the
legitimate question to ask is - Was it sustainable or it was just a [7]bubble?
Volkswagen wanted to grow that’s natural. But, it wanted to
grow too big, too fast, that’s where it flawed. It embarked upon the path of [8]disruptive
innovation. Finally, it took a group of humble students led by a [9]professor
of to tip the first domino and the
company was forced to its knees.
Unfortunately, disgrace cannot be quantified. To quote [10]Alan
Greenspan- ‘The whole system is based on trust. When the trust is broken the
system implodes’. [11]Simon-Sinek
echoes same emotions in his ted-talk where he quips that consumers do not buy
just a product or a service, they buy trust and belief. Consumers buy products
or services which resonate with their own belief-system. They buy what they
believe in.
Volkswagen saga is the saga of lost opportunity. When it was
time for adaptation it focused on innovation. In the modern digital-era where
open communication is a norm, the company embraced iron-wall policy. The
company found it hard to alienate itself from the rate race of chasing numbers
and positions. They failed to reckon that growth has its own limits. That speed
is not synonymous to success if the direction is wrong.
Cars come with an accelerators and breaks. Volkswagen pushed accelerators when it was time to pull breaks. Accident was inevitable.
Cars come with an accelerators and breaks. Volkswagen pushed accelerators when it was time to pull breaks. Accident was inevitable.
[3] “The
extraordinary rise and rather undistinguished decline of Nokia.”, Rolf
Strom-Olsen and Serena Mujtaba, ,Critical Management Thinking, Revised draft
Version, Feb-214
[4]
“The Innovation
Paradox – Chapter 3”, Rolf Strom Olsen,
[5]
Roger L.
Martin, “The age of customer capitalism”, HBR 2010/01 – HBR Online Magazine, “https://hbr.org/2010/01/the-age-of-customer-capitalism”
[6] Disruptive
Innovation, Wikipedia, accessed Jan 21 2015, “https://en.wikipedia.org/wiki/Disruptive_innovation”
[8] Disruptive
Innovation, Wikipedia, accessed Jan 21 2015, “https://en.wikipedia.org/wiki/Disruptive_innovation”
[9] How a five-person
team exposed VW”, Fortune Online Magazine, accessed Jan 21, 2016, "http://fortune.com/2015/12/26/exposing-volkswagen-scandal/?iid=sr-link3
[10] “What I got
wrong”, CBS News Online, accessed Jan-21-2016,
http://www.cbsnews.com/news/alan-greenspan-what-i-got-wrong/”
[11]
Simon-Sinek,
“How great leaders inspire action”, Ted Business Forum, accessed Jan 21, 2016, http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action
[i] “Volkswagen drops 23% after admitting Diesel Emissions
Cheat,” last modified September 21,
2015 — 12:36 PM IST Updated on September 21,
2015 — 9:10 PM IST, http://www.bloomberg.com/news/articles/2015-09-21/volkswagen-drops-15-after-admitting-u-s-diesel-emissions-cheat
“Google
Privacy Policy,” last modified March 11, 2009,
http://www.google.com/intl/en/privacypolicy.html.
[ii] http://annualreport2014.volkswagenag.com/group-management-report/net-assets.html
[iii] [iii]
, Volkswagen’s scandal management: needs improvement”, Fortune Online Magazine,
accessed Jan 21, 2016, http://fortune.com/2015/09/24/volkswagen-scandal-management/
[iv] http://www.entrepreneur.com/article/242824
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