OPINION – The Volkswagen emission testing scandal revealed a distorted view of management and a tragic disconnect between the company’s principles and its behaviors.
Words: Boaz Tamir, President, Israel Lean Enterprise
“I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” said Martin Winterkorn upon resigning from his role as CEO of the Volkswagen Group and apologizing for the deep blow dealt to the trust of customers and the public in the organization (VW’s “most important asset”).
Volkswagen's fraud – which involved tricking US pollution emission tests via a sophisticated software, known as “defeat devices,” installed in the electronic control module of diesel vehicles issued between 2008 and 2015 – points to a managerial failure that is directly connected to the leaders of the organization.
Whether or not VW top officials were aware of, participated in, or merely chose to ignore what was going on, their responsibility stems from their failure to maintain a direct connection between the company's professed values and its actual behavior.
For several decades, Volkswagen served as a model of managerial, engineering and operational excellence. In fact, until the scandal broke, the company was getting closer to its target, set by Winterkorn's plan, of becoming the largest and most successful automaker in the world. Instead, the knowledge and skills present in the organization produced one of the largest car frauds in history, which had to involve, at a minimum, dozens of engineers and managers.
What were those managers, engineers and installers thinking when they fitted the software? What organizational culture could bring a glorious company so close to the edge of the abyss?
Furthermore, how is it possible to explain the fact that, despite the emphasis placed on corporate responsibility, not even one whistleblower stepped forward and the company's quality control system failed?
It will take weeks, if not months, to shed some light on the scandal, but I believe that the lesson to be learned here is not only relevant to Volkswagen managers and workers, but for anyone involved in the area of regulation or in the study of management theory.
As brilliantly explained by Jim Womack here on Planet Lean a couple of weeks ago, the Volkswagen scandal reminds of the fundamental differences that exist between the two management paradigms in use today: on one side the traditional “management by objectives” mindset; on the other, lean thinking and its focus on creating value for customers.
What happened at Volkswagen seems to reveal the blind spots inherent to traditional management, which considers the achievement of goals at all costs as almost the sole criterion for success.
Could it be that those who planned the fraud were trying to achieve the goals, set for them by management, at all costs?
And could it be that while this was going on managers were locked in their offices reading progress reports instead of actively engaging with people at the gemba?
At first sight, Volkswagen management did what management normally does: designing a clear strategic plan and trying to achieve operational excellence to realize it. It also defined the company’s purpose and articulated its value proposition based on the principles of lean thinking, vowing to work for the “creation of freedom of movement effectively, safely and through a unique driving experience while maintaining social and environmental responsibility.”
Apparently, however, the company’s sole purpose appeared to be the achievement of the number one place in the auto industry, which in practice proved to be at odds with the ideas presented in its mission statement (value creation for the customer and environment responsibility).
We find that an organizational culture based on hierarchy and discipline and a company structure with a centralist CEO at the top who controls each and every detail do not encourage a sense of responsibility or critical thinking across the business.
Not one member of the company has criticized the lack of coherence with the VW values and ethical code. No one dared to say, “Sir, you are wrong.” This is where lean management in, once again, fundamentally different: a lean organization promotes a culture in which the workers have the authority and the skills to warn of difficulties (the andon system, to mention one of the most famous ways in which problem identification takes place) and to solve problems by working with their cross-functional teams.
The legal costs, the fines and the reparations to customers, which will add to the accelerated depreciation of the company's stocks, will represent minor damage compared to what this scandal has done to Volkswagen’s reputation and commercial standing. One can only hope that the CEO's resignation and his promise that the company will be “cleaned up” lead to an in-depth examination of the crisis and its root causes, in order to re-build Volkswagen’s managerial view and establish an organizational culture that encourages questioning, critical thinking, and skepticism, and supports operational excellence to create real value for the customers and the community.
The challenge for the newly appointed CEO Matthias Mueller is to articulate a purpose that will serve as an obligatory compass, to redefine the role of the manager as the designer of the organizational culture and processes and – most importantly – to regain the customers’ trust and to re-establish collaboration with people at all levels of the business.
In his first remarks Mueller vowed to grant “more authority” to individual brands and regions, which would represent “a departure from the centralized structures that kept key decisions in Wolfsburg and the chief executive officer’s inner circle.” This would be a step in the right direction and, if confirmed by actions, might guide the company through the turbulent times ahead.
Boaz Tamir is founder and president of Israel Lean Enterprise. He has extensive experience in entrepreneurship, turn around processes, company management, and academic research, and has contributed his knowledge to the business development and marketing of some of the largest and most successful organizations in Israel. Tamir is a founding and managing partner of Montefiore Partners Venture Capital Fund and has also served as founder and director of Romold Group, a multinational company specializing in environmental technologies and the development and production of infrastructure products for water and waste-water management and telecommunication. Tamir holds a Ph.D. in Political Science and Management from MIT