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Volkswagen Pays the Price for a Culture of Arrogance

Posted By Jeff Moad, December 15, 2015 at 10:03 AM, in Category: The Adaptive Organization

Members of the Manufacturing Leadership Council are always telling us they want to transition their companies to become more collaborative and get more of their employees engaged in offering ideas that ultimately lead to better products and services for customers. As markets demand faster new product innovation and as products and plants become more infused with technology, they say, manufacturers must get better at collaboration and worker engagement if they are to satisfy customer expectations by implementing new ideas and recognizing and fixing problems faster.

It’s sometimes tempting to think of all of this focus on collaboration and engagement as a soft “nice to have,” something that makes employees feel better about their workplace and their bosses but that has no demonstrable impact on the bottom line. But nothing could be further from the truth. Exhibit A: Volkswagen’s Dieselgate scandal.

As those who have been following this sordid tale know, Europe’s largest car manufacturer has admitted to engaging in a 10-year secret effort to skirt vehicle emissions regulations by installing in 11 million diesel vehicles software designed to fool emissions tests. The scandal, which has already cost CEO Martin Winterkorn his job, has also undermined VW’s global public image and could reportedly result in $18.2 billion in fines levied by the U.S. Environmental Protection Agency. It has also reduced the market value of VW cars and raised the possibility that the company will be required to compensate current customers for those losses besides paying to have emissions systems on the affected diesel vehicles upgraded.

Last week, VW top executives revealed the preliminary results of an internal investigation into the causes of the scandal. While insisting that direct knowledge of the secret emissions control-defeating software was limited to a handful of engineers at the company—some of whom have already been suspended--Chairman Hans-Deiter Pötsch and new CEO Matthias Mueller acknowledged that, not only was the emissions cheating allowed to go on for years, but that the episode was indicative of cultural problems at VW. “There was a tolerance for breaking the rules,” Mr. Pötsch said at a news conference where the preliminary investigation results were announced.

But the cultural problems at VW appear to have gone far beyond a distain for regulations. Past employees and VW observers are now saying that VW’s culture, far from being characterized by collaboration and engagement, was one of top-down arrogance. It demanded conformity, discouraged divergent thinking, and punished failure rather than learning from it. Under Winterkorn and his predecessor, Ferdinand Piech, these folks say, subordinates avoided contradicting their superiors, and no one admitted mistakes out of fear of being shut out or fired. Winterkorn in particularly was known for publicly upbraiding employees who he thought had made mistakes.

Engineers who, in the early 2000s, advocated for a diesel emissions control technology that VW ultimately decided not to use, for example, reportedly were replaced.

One former VW executive was recently quoted as calling the company’s culture “like North Korea without labor camps.”

Hyperbole no doubt. But the VW culture apparently rewarded those who did whatever it took to validate and successfully execute on the decisions of superiors. Pointing out ways that things could be done better and admitting mistakes was reportedly discouraged in the strongest terms.

Former GM and BMW executive Bob Lutz has said VW’s culture is one in which “performance was driven by fear and intimidation.”

Of the VW culture, Bernd Osterloh, Chairman of the company’s workers council, said, “We need in the future a climate in which problems aren’t hidden but can be openly communicated to superiors.”

This is exactly the type of culture that many members of the ML Council are seeking to encourage at their companies. That’s because they know that, as change accelerates and products, business processes, and the technologies that infuse them become more complex, the answers can no longer be expected to come exclusively from top leaders. They must come from everyone in the organization, pulling in the same direction and empowered to say what they see and fix what they can.

To get there, we see leaders creating more transparency in their organizations, clearly defining the roles and responsibilities of everyone in the company. They’re rewarding workers at all levels for pointing out problems, and they’re putting in place systems that hold supervisors accountable for taking action or explaining why no action was taken. They’re doing this because they understand that a culture of collaboration and engagement leads directly to innovation, and execution that is ethical, lawful and that, ultimately, delivers more value to customers.

Of course, restyling the culture of a company with the size and history of VW won’t be easy, and it won’t happen overnight. It will remain to be seen if the company’s current management is up to the task. But at least VW’s leaders have taken the first positive step: They’ve admitted at least some of their mistakes.


Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit

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Regrettably well said Jeff. The VW scandal is the Enron of today, both flowing out of a level of arrogance that inevitably leads to failure and disgrace. As General Eisenhower famously said, "if every one is thinking the same, someone is not thinking". And he was a military guy.
Transparency has the same effect on bad business practices and arrogant leaders that sunlight has on roaches. They tend to disappear. Driving transparency, particularly economic transparency, is a huge missed opportunity for many manufacturing companies. But since economic transparency drives improved business results, higher customer satisfaction and employee engagement, I have every confidence that it will eventually take hold. Industry leaders, like Southwest Airlines and Harley Davidson are already showing the benefits. John Case and I are broadcasting the whys and hows of economic transparency, in article ranging from:
Change always meets resistance for the entrenched status quo. The question one should consider: Do you want to be the Southwest of your industry or the TWA? (yes, I know TWA is gone, which is my point) This is not just a "nice to have", as you suggest. In our knowledge economy, it is an essential competitive tool you can use or have used against you.
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Jeff, you write an amazing post, thank you for that! lesson learned for all who work in the Industrial field, for all who work in a firm, I would say for all who work.

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Surprisingly enough and despite all their current internal issues, VW is able to produce excellent products. After years of using VW and other German vehicles it is hard to imagine driving something else. So may be the situation isn't that bad overall as they are able to manage such loyal customers?
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