The Lessons from VW’s Diesel Scandal

This is part 1 of a 4 part series looking behind the obvious of the VW diesel scandal

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The diesel engine fiasco

The diesel engine fiasco that has befallen the Volkswagen group over this past year, resonates deeply with me. This is due to the fact that before starting my consultancy and moving out to Asia some 15 years ago, I was the head of Marketing for VW Commercial Vehicles which, at the time, was one of the 5 main brands within the group. This position exposed me to the company’s top management, the culture and the inner workings of the organization. Although this was a long time ago, the essence of the company has changed little and, if anything, the intervening years have allowed me to gain a lot of perspective on leadership, organizational culture, employee engagement and customer centricity.

In my view, VW was/is first and foremost an engineering driven organization. Starting with Dr Piech, the group CEO during my time, the decision makers had detailed knowledge of incredibly complex topics such as direct fuel injection systems and powertrains. They were obsessive about quality and finish. They put a lot of effort and pride into their work. Their focus on their products, their technology and the details accounted in large part for the group becoming the top selling brand worldwide.

Given this culture and the gravity of the fraud, it is worth doing an overview of the salient points of the case to provide background and context to the story.

The real backstory behind the fiasco

The context is quite straightforward:

  • At the core of combustion engine technology is the eternal trade-off is between performance and emissions.
  • It takes up to a decade and costs billions to develop a new range of engines. So decisions on which technology to invest in, have a very profound impact on the future wellbeing of a car company.
  • In the case of VW, they decided to go all in on their own diesel engines instead of jointly developing other technologies with competitors such as Mercedes.

Clearly, somewhere along the line, as the VW engine developers were working away, they realized that their chosen strategy was not going to generate the targeted performance and fulfill the emissions levels required by certain markets. So, instead of going back and looking for an alternative technology, they simply reprogrammed the diesel engines’ software to recognize when the car was being run on a test bed. The engine management system would sense the car was undergoing a test and it would automatically lower performance thereby restricting emissions. Once the car was back on the road, the software would revert the engine back to its normal performance levels and emit much higher level of pollutants.

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The cheat enters the fiasco

This cheat, called “the diesel dupe”, worked for over 6 years. During that time, VW sold over 11 million cars equipped with the test defeating software. It took a small laboratory at University of West Virginia in the USA, who was given a paltry grant of USD 70,000 to test emissions while driving on real roads instead on test beds, to uncover the truth.

Once the cheat was revealed, VW lost over half its stock value, down from a high of Euro 205 a share to a low of Euro 95; although its stock recovered somewhat and is currently trading around Euro 120. Furthermore, the company has agreed to pay the USA government and owners USD 14.7 billion in damages, by far the largest settlement of its kind.

The cheat always takes the heat

Much of the press has laid the blame for the diesel dupe on the top down management style, the pressure to produce results in order to get ahead which led employees to only report good news and hide bad news. These reasons appear to make sense at first glance given the company’s focus on results. However, it may not as simple as that.

In my view, the diesel dupe case is much more about company culture and organizational behavior. It is also about being internally oriented versus customer centric. And, it is about managing risk in the face of complex and expensive projects.

The interesting part is that the lessons derived from this case are relevant to all organizations. In particular, the next three posts key over insights that any organization can take on board.

 


doug dean

Doug Dean is the COO of Human Capital Group Asia

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