The Volkswagen crisis: Does your organisation cheat too?

The world´s leading car manufacturer has admitted to cheating on emission regulations. Who would have believed it if we had we been told that only a few weeks ago? And of course the media, government, lobbyists and automotive leaders appear to be very clear on the problem and how to solve it. The Volkswagen CEO has already resigned and more officials will probably follow in his wake. We even might find out that this is just the beginning of the scandal. In response, we may expect to see new, stronger European regulations put in place to prevent any further wrongdoing. But what if these regulations just increase bureaucracy and don’t address the real underlying issue? Perhaps we should take time to step back and instead try to understand what has really been going on.

Is it a German problem?

Is it a German problem? “‘Made in Germany’ lies in the ‘gutter’ after Volkswagen caught cheating” was a recent Telegraph headline. In this instance, the public have undeniably been hoodwinked about the emissions of VW diesel cars. This was disgraceful behaviour. However, it is our contention that this is neither a uniquely German nor indeed a Volkswagen specific problem: cheating of this kind happens across public and private sectors, whichever country we are living in. Of course, the degree of cheating will vary, as will the severity or criminality involved. However, this type of behaviour could have (and in fact it does) happen in most industries. For example, in the UK we have seen the various rate-rigging or mis-selling scandals that befell the banks. Some people might say this could happen because there are bad people across the world. I say: no, its ubiquity suggests instead that there must be managers following bad theory across the world, meaning managers put good people into bad systems that allow, encourage or even force people to cheat.

Carrot and stick

As W. Edwards Deming was teaching the world over 30 years ago, 95 percent of the performance of an organisation is down to the design and management of the system, only 5 percent is down to the individual. In this instance it is not a people issue, the design through targets and bonuses is causing staff and managers to cheat. I have worked for a leading German car manufacturer myself and was able to explore the culture of pressurising staff through arbitrary targets, combined with a “carrot and stick” bonus system. These features of modern management certainly encourage people to distort or to fake results within an organisation.

Targets

Traditionally managed car manufacturers have a variety of targets in place such as product targets relating to fuel consumption, emissions, performance, weight, etc, as well as process targets around things like time-to-market. These targets filter down in the form of departmental pressures between functional departments: the marketing and sales people who whisper in engineers’ ears about how many more cars they could sell if they were better than their competitors, the finance people who calculate the business case and then tell procurement to fight for their purchase strategy and targets. At the end, a few people down the line find themselves caught between a myriad of targets to achieve which either leads to failure or success for an individual. Ability to achieve the targets will decide how big the smile on their children’s faces will be when receiving their Christmas presents.

A culture of cheating

Deming also taught us that if people are not able to achieve targets, it is very likely that a culture of cheating will develop. These are unlikely to be bad people, it´s a bad system that drives these behaviours. Systems can emerge in many ways, such that it becomes normal or acceptable within the organisation. Of course, the moral responsibility to act lawfully and not to deceive must remain with the individual; they cannot blame the system for individual criminality. However, systemic factors can make a system more or less prone to cheating, and at a macro-level systemic factors are the responsibility of executive leaders.

Innovation in the wrong place

If people are under pressure to achieve targets fed from above, they become innovative around the wrong things. The whole energy which could be used to improve the system from the customer’s point of view will be used to find novel work-arounds in order to tick the box. In automotive companies, a project or R&D leader finds themselves torn between numerous targets. In other words, you are caught between a rock and a hard place. If you can´t find a magic wand to make things better, then you are obliged to pretend to have found it and get cheating!

Management pressure

And it gets worse. When top management are fed the bad news, the answer invariably comes back: ‘You had better make it happen!’ This understandably leads to an aversion to bad news and an instinct to cover up the problem rather than appeal for help to solve it. For instance, during my time in a car manufacturer, I experienced that the traffic light rating stayed green even when the whole team was aware of its true red colour. A launch of another product was brought forward on paper to impress the board, even though the whole team knew the task to be impossible. Therefore I am not surprised if the VW CEO Mr. Winterkorn claims that he did not know what was going on. It’s probable he was genuinely unaware of the criminal actions, but that does not mean he has been wrong to step down. He must take some responsibility for allowing a system to develop that in a system that incentivised people to go down that route.

The way forward

The Vanguard Method helped me to understand that traditional management features such as targets are a problem common to many industries or private sectors. They are designed based on the assumption that people are not going to work to do a good job. We need to give them a kick, show them a carrot and resort to extrinsic motivation. And this is where it all starts to go wrong. If you motivate people extrinsically without an understanding of what the clear purpose of an organisation is from a customer’s perspective, you get what you asked for. People will tick boxes and fulfil the numbers. If they can’t legitimately, they will resort to cheating. The wrong thing to do is to act without understanding the true underlying issue. We can fire a lot of people, put in new rules and regulations, increase the number of tests or implement a compliance and auditing procedure. That would miss the real problem. What needs to happen is to understand and challenge the way the system is working. From there, we can replace arbitrary targets with meaningful measures related to a customer purpose. The priority must be to get managers to spend time in the work to identify problems and to change to a culture of continuous improvement rather than continually promulgate pressure, blame and fear.

Hendrik Ascheberg