Volkswagen’s Emissions Scandal and Recovery Strategy

            Volkswagen, driven by their Strategy 2018, lied to the world with their claims of having ecologically friendly low-emissions diesel vehicles.  When it was discovered that Volkswagen had tricked emissions testing with vehicles that were as much as forty times the permissible pollution limits, a scandal referred to as diesel-gate unfolded (Magadia. 2019, p.5-6).  Volkswagen tried to fix this situation with Strategy 2025, which focused the company at sustainable mobility, electric vehicles, digital transformation, and self-driving vehicles (Magadia, 2019, p.10).  Both of these strategies were fundamentally flawed because they were not backed up by strategic goals and core company-wide key performance indicators (KPIs) to support them.  While they spoke of sustainability and reduced emissions, their culture was focused on maximizing revenue and cash flow, with no core corporate KPIs around environmental impact or emissions whatsoever.

Volkswagen’s Strategy 2018

            Volkswagen’s Strategy 2018, unveiled in 2008, was a ten-year plan toward positioning Volkswagen as the most sustainable and economically successful automobile maker in the world (Strategy 2018, n.d.).  The mission statement of the strategy was to “become the most successful, fascinating and sustainable automobile manufacturer” (Muller, 2018).  They planned on doing this through four goals.  They had a goal of deploying innovations and technologies to become the leader in both quality and satisfaction.  They had a goal to sell 10 million vehicles a year.  They had a goal to increase return on sales before tax to at least 8%.  They had the goal to become the top employer across all brands.

            Interestingly, none of the goals support the strategy of being sustainable in any environmental sense.  Sustainability, in their strategy, seems to be a buzzword rather than something that Volkswagen wanted to back up with their strategic goals.  Still, Volkswagen speaks to it in their 2011 Annual Report, saying “We are focusing in particular on the environmentally friendly orientation,” which appears to mean that they intended to target the environmentally friendly market (Muller, 2013).

Key Elements of Strategy 2018

            Strategy 2018 had three key elements.  First, increasing sales to more than 10 million vehicles per year with an 8% margin (Strategy 2018, n.d.).  This goal would indicate that Volkswagen was a global superpower, selling more units at a higher profitability than Toyota (Schmitt, 2010).  They achieved their volume goal of 10 million units in 2016 when they delivered 10.3 million vehicles (Schmitt, 2017).  Second, Strategy 2018 offered the element of innovation and technology to increase customer satisfaction and quality.  It can be implied that this element is where the sustainability and environmental friendliness comes in.  Volkswagen’s messaging indicated that they wanted to set “new ecological standards” as well as offering an “attractive and environmentally friendly range of vehicles” (Strategy 2018, n.d.).  The third element of Strategy 2018 was Volkswagen’s desire to be the best by becoming the top employer in the industry, thus giving them the best team (Strategy 2018, n.d.).  These all worked together to support Volkswagen CEO Martin Winterkorn’s aggressive expectation of becoming the top of the global car industry by 2018 (Muller, 2013).

            Strategy 2018 failed to concretely tie environmental messaging to strategic goals.  Sustainability and environmentalism were window dressing for strategic goals that were focused on financial dominance.  In other words, Volkswagen’s environmental focus was meant to increase sales, but there were no actual environmental metrics included in the goals.  Volkswagen needed supporting goals like “Volkswagen will focus on innovations in engineering to reduce pollutant emissions from all of its vehicles by 50% of their 2008 emissions.”  This would have been a measurable goal to support the environmental focus.

Volkswagen’s Strategy 2025

            In Volkswagen’s Strategy 2025, their focuses are on reducing the number of models to streamline costs and recoup lost revenues as well as on sustainable mobility through clean vehicles and electric vehicles.  Specifically, their plan is to be “the world-leading provider of sustainable mobility” (Magadia, 2019, p.16). According to the Volkswagen Goals and Strategies from their Annual Report 2017, they are creating a framework for creating excited customers, being an excellent employer, being a role model for the environment, safety, and integrity, and being profitable and competitive (Goals and Strategies, n.d.).

            This time, their strategy is supported by goals around sustainability and environmental cleanliness.  Volkswagen is focusing on environment as well as integrity (Goals and Strategies, n.d.), in an effort to win back the public after their scandal.  Sadly, none of the core key performance indicators (KPIs) at Volkswagen support any sustainable thinking.  All of their key performance indicators are tied to revenue, cash flow, and number of sales.  None of their key performance indicators are related to their environmental goals and strategy (Internal Management System and Key Performance Indicators, n.d.).  This speaks to the fact that Volkswagen still does not value their environmental strategy and use it as propaganda, while their corporate culture is focused on the hard numbers of financial success.  In the idea that a company will measure what matters to it, Volkswagen demonstrates that they do not value the environment nor their integrity since there are no core company KPIs that relate to these objectives.

            In order to improve on Strategy 2025, Volkswagen needs to measure what matters.  This should not be a scorecard kept on the side.  Strategy 2025’s goals should fuel the core key performance indicators of the company and thus drive the incentives and culture of the company.  Rather than focusing on “Return on investment (ROI) in the Automotive Division” as a key performance indicator (Internal Management System and Key Performance Indicators, n.d.), they should measure ratio of alternative energy vehicles sold to fossil fuel energy vehicles sold.  They should measure the average emissions footprint of their annual sales.

            A key performance indicator measuring the decrease in carbon emissions across the vehicles sold in the year, compared to the previous year, would be a powerful statement.  This kind of KPI would tell the world “Yes!  We care about the environment!”  Instead, their current strategy looks like a lie since Volkswagen’s core key performance indicators are all around financial success.  John Doerr’s book Measure What Matters discusses this very concept.  Creating measurable objectives and key results (OKRs) to support what matters to the strategy will help the organization to achieve its goals (Starkey, 2021).

Volkswagen’s Transformation by 2025 – Is this turnaround achievable?

            Volkswagen planned to transform its core business to streamline its offerings, develop self-driving systems, develop better customer satisfaction, and develop battery technology as a core competency, among other targets (Four building blocks of the future program TOGETHER – Strategy 2025, n.d.).   Given the short timeline and the amount of research and development, additional investment, cultural change, and reworking of corporate and manufacturing methodologies, the transformation does not appear realistic to happen by 2025.  Focusing on sustainable mobility as their concept requires them to be very agile.

            Their promise is “With electric drive, digital networking and autonomous driving, we make the automobile clean, quiet, intelligent and safe.  At the same time, our core product becomes even more emotional and offers a completely new driving experience.  It is also becoming part of the solution when it comes to climate and environmental protection.  In this way, the car can continue to be a cornerstone of contemporary, individual and affordable mobility in the future” (Strategy TOGETHER 2025+, n.d.).  This indicates a drastic digital transformation within the company, a renewed focus on the customer and satisfaction in the driving experience, as well as reworking all of their technology to be focused on electric drive and autonomous driving.

            While possible, Strategy 2025 appears to be trying to conquer too many things at once in a desperate attempt to reclaim market share, build brand equity and repair reputation with the public, and reposition the Volkswagen brand.  It is a bold and aggressive strategy, but it is not backed up by the company’s core key performance indicators.

Conclusion

            Volkswagen’s culture is one of intensity and cutthroat financial success and aggressively achieving superiority (Magadia, 2019, p.11).  In order to embrace a strategy that is focused on the environment, reduced emissions, and customer excitement, the corporate culture needs to focus on measuring and rewarding success in those areas.  Key performance indicators around carbon emissions and net promoter scores from existing customers are more valuable in this kind of cultural change than focusing on the balance sheet.  In order to really transform Volkswagen, executive incentives need to be around net change in carbon emissions by Volkswagen drivers, not number of units sold and profit margin.  Yes, revenue and profit are crucial to a business, but when revenue is all that is focused on, it becomes all that matters.  Volkswagen needs to change their core metrics and culture to focus on the things that they preach in their strategies.

by Art Ocain

References

Four building blocks of the future program TOGETHER – Strategy 2025. (n.d.). Volkswagen. https://annualreport2017.volkswagenag.com/group-management-report/goals-and-strategies/four-building-blocks-of-the-future-program.html

Internal Management System and Key Performance Indicators. (n.d.). Volkswagen. https://annualreport2017.volkswagenag.com/group-management-report/internal-management-system-and-kpis.html

Goals and Strategies. (n.d.). Volkswagen. https://annualreport2017.volkswagenag.com/group-management-report/goals-and-strategies.html

Magadia, R., Hanno, M., Kadoo, A., Akinsaya, D., & Carlson, A. (January, 2019). A real-time case analysis. ResearchGate. Retrieved September 9, 2020 from https://www.researchgate.net/publication/330324062_A_Real-Time_Case_Analysis

Muller, J. (2013, May 5). How Volkswagen Will Rule The World. https://www.forbes.com/sites/joannmuller/2013/04/17/volkswagens-mission-to-dominate-global-auto-industry-gets-noticeably-harder/?sh=38c2ccde3c46

Schmitt, B. (2010, February 3). Volkswagen’s Strategy 2018. With Generous Support From GM And Toyotahttps://www.thetruthaboutcars.com/2010/02/volkswagen%e2%80%99s-strategy-2018-with-generous-support-from-gm-and-toyota/

Schmitt, B. (2017, January 30). It’s Official: Volkswagen Is World’s Largest Automaker In 2016. Or Maybe Toyota. https://www.forbes.com/sites/bertelschmitt/2017/01/30/its-official-volkswagen-worlds-largest-automaker-2016-or-maybe-toyota/?sh=180b21b076b0

Starkey, K. (2021, July 30). Setting the Right Goals in the Right Way. https://www.forbes.com/sites/kimjonker/2021/07/30/setting-the-right-goals-in-the-right-way/

Strategy 2018. (n.d.). Volkswagen. https://annualreport2011.volkswagenag.com/managementreport/reportonexpecteddevelopments/strategy/strategy2018.html

Strategy TOGETHER 2025+. (n.d.). Volkswagen. https://www.volkswagenag.com/en/sustainability/environment/strategy-together-2025.html#

Published by artocain

I am a DevOps advocate, not because I am a developer (I’m not), but because of the cultural shift it represents and the agility it gains. I am also a fan of the theory of constraints and applying constraint management to all areas of business: sales, finance, planning, billing, and all areas of operations. My speaking: I have done a lot of public speaking in my various roles over the years, including presentations at SBDC (Small Business Development Center) and Central PA Chamber of Commerce events as well as events that I have organized at MePush. My writing: I write a lot. Blog articles on the MePush site, press-releases for upcoming events to media contracts, posts on LinkedIn (https://www.linkedin.com/in/artocain/), presentations on Slideshare (https://www.slideshare.net/ArtOcain), posts on the Microsoft Tech Community, articles on Medium (https://medium.com/@artocain/), and posts on Quora (https://www.quora.com/profile/Art-Ocain-1). I am always looking for new places to write, as well. My certifications: ISACA Certified Information Security Manager (CISM), Certified Web Application Security Professional (CWASP), Certified Data Privacy Practitioner (CDPP), Cisco Certified Network Associate (CCNA), VMware Certified Professional (VCP-DCV), Microsoft Certified System Engineer (MCSE), Veeam Certified Engineer (VMCE), Microsoft 365 Security Administrator, Microsoft 365 Enterprise Administrator, Azure Administrator, Azure Security Administrator, Azure Architect, CompTIA Network+, CompTIA Security+, ITIL v4 Foundations, Certified ScrumMaster, Certified Scrum Product Owner, AWS Certified Cloud Practitioner See certification badges on Acclaim here: https://www.youracclaim.com/users/art-ocain/badges My experience: I have a lot of experience from developing a great company with great people and culture to spinning up an impressive DevOps practice and designing impressive solutions. I have been a project manager, a President, a COO, a CTO, and an incident response coordinator. From architecting cloud solutions down to the nitty-gritty of replacing hardware, I have done it all. When it comes to technical leadership, I am the go-to for many companies. I have grown businesses and built brands. I have been a coach and a mentor, developing the skills and careers of those in my company. I have formed and managed teams, and developed strong leaders and replaced myself within the company time and again as I evolved. See my experience on LinkedIn here: https://www.linkedin.com/in/artocain/

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