The Death of Volkswagen?Because of Their Culture?

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While the immediate financial impact is a $14.7B fine, the ongoing litigation and the potential buyback of 500,000 vehicles, loss of market share, loss of credibility in the market etc. etc.,  the far more significant impact is that VW will not be a player in shaping the automobile industry’s future over the next 5-10 years.  Instead, they will be in survival mode – which invariably means they won’t be part of the future at all.

According to a recent article by Jeffrey Rothfeder in the New Yorker, the top down control culture (from Fredrick Taylor – Scientific Management) of VW was the primary reason for this debacle.  Management develops bold targets and employees are pressured to deliver those targets – at all costs!  He goes on to add Apple, Nissan, GE and Boeing to that list.  Readers of this blog will remember us talking about the delay in Boeing’s Dreamliner and Jeffrey also cites that as an example of the “aggressive goals – fearful employee” dynamic.

Strategy 2018 for VW was launched in 2007 by the new CEO with a goal of global domination (this probably sounds familiar to many of you 🙂 ) and a major part of that strategy was a clean diesel engine – and the employees were to figure out how to deliver that.  With no technology solution available, they installed software that made the diesel engines run cleanly only when the cars were being tested – thus allowing huge sales without actually providing clean diesel engines.  Engineers knew they would lose their jobs and management didn’t want to hear any excuses – just the results.

What is ironic is that these types of organizations actually consider themselves to be collegial and collaborative – imagine that!  The article cites Keith Ferrazi who calls this the “delusion of infallibility”.  Think about that – your executives are of the opinion that they have actually created a collegial and collaborative culture when in fact it’s the exact opposite.  How would you ever go about making any kind of change in that type of environment?  Who will step up and point out that the emperor has no clothes?  VW’s firmly held belief was that their brands were all autonomous and hotbeds of innovation and they would all share these innovations across brands.  In fact it was the exact opposite – they shared virtually nothing, kept secrets and even subversion was present.  Change Management is hard enough by itself but almost impossible when you are dealing with a leadership team that not only does not see the need for change but believes that their culture is phenomenal.

It may be hard to imagine in this day and age that top down cultures are still present and present in so many global brands.  These types of cultures have led to catastrophic and in some cases existential impacts.  It is hard to determine if any of these organizations recognize and attempt to fix the problem.  I have not heard any significant attempts at changing the culture and decision making processes at Boeing for example because of the Dreamliner fiasco.  In our work with clients, the beliefs and assumptions that executives have about their organizations is the biggest roadblock to transforming them.  Top down cultures have an abundance of these totally false beliefs and assumptions about their organizations being innovation engines driving global growth while sitting around the campfire singing Kumbaya.  You might be surprised to find that your organization has this type of culture but it is a question that you must ask.  The answer to that question may provide you with answers to many other questions related to why making change happen is so hard in your organization.

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Dalip Raheja is President and CEO of The Mpower Group (TMG). Dalip has over 30 years of experience managing large organizations and change initiatives. He has worked across the spectrums of supply chain management, strategic sourcing, and management consulting.

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