VW’s TDI Scandal Threatens Credibility

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David Falzani

Guest Blog

A chartered engineer, David Falzani is president of Sainsbury Management Fellows which was founded over 25 years ago by Lord Sainsbury to encourage better management skills in UK engineering. David is also chief executive of Polaris Associates which helps entrepreneurial companies develop and grow as well as visiting professor at Nottingham Business School where he teaches how to bring technology, innovation, entrepreneurialism together to create successful businesses.

The recent press coverage of the still-unfolding VW scandal increasingly suggests a defence position that the fraud is going to be blamed on a ‘small group of engineers’.

The eventual investigation into what led up to the current situation will be like unpeeling an onion and should be only slightly less interesting as the answer to the question of how the hundreds of thousands of vehicles will be corrected – given that software alone will not be a sufficient fix in many cases, and hardware changes will be required. Hardware that was presumably not available at the time of manufacture, otherwise no need for the cheat. The potential costs or ‘fixing’ the emissions are therefore truly staggering.

Nonetheless, if the defence turns out to be that it was rogue engineers making a local decision then the question will be whether that is a credible position. Analysis of corporate collapses and scandals of the last few decades have, with a couple of notable exceptions, always shown senior managements’ complicity. The chances are, therefore, this will be no different.

It seems strange that VW chose to go down a particular technology route without doing enough due diligence to ensure that the question of whether the technology worked or not was fully understood by those who signed it off.

In organisational design there are models for behaviour such as the Thomas Kilman conflict mode instrument. It characterises 5 different styles or approaches to interactions and, in particular, how to manage disagreement: competing, collaborating, avoiding, accommodating and compromising. Each style has its own attributes and occasions where it is particularly effective or not. For example, competing is fast, and can be effective if the levels of uncertainties are low, but can be abrasive and damaging to human relationships.

After the Space Shuttle disaster in 1986 NASA found that one of the failures leading to the disaster was with the group responsible for the final go/no/go decision. As well as lacking the participation of some of the key stakeholders (the astronauts) it also had an incorrect operational style which led to a faulty decision being made. Essentially, the engineers who felt the launch should not go ahead were overruled by their bosses. Afterwards, NASA instead designed a process with a collaborative style to ensure that everyone was fully on board and a full consensus was built. Not easy to do in essentially a risk management environment where never launching is the least risky approach.

It will be interesting to see how the decisions leading to the cheating scandal in VW came to pass, and also what role the organisational culture and management decisions had in either encouraging, or not preventing, the deception.

Did the individuals in VW think they would not be caught? Similar scandals from WorldCom to Barings Bank show that the risk of getting caught does not always prevent this kind of behaviour. Either the individuals are able to deceive themselves in this regard, or perhaps, more worryingly, they have experience of similar behaviour in the past that has not been discovered i.e. an escalating record of getting away with it. The spectres loom of CO2 irregularities and questions are being asked regarding similar behaviour across many manufacturers in the industry.

If VW is an isolated case, then much like Toyota’s 2009/10 vehicle recalls, good crisis management should be able to turn the situation around and so regain people’s trust, assuming the financial implications can be met and the company can remain solvent.

However, if widespread cheating is found, the biggest threat could be something like the equivalent to the financial sector’s credit crunch, but for the automotive and engineering sector: an undermining of the public’s trust in what they are told about engineering and technology. The public are already confused due to conflicting messages on whether diesel engines are good or bad for the environment.

The loss of trust could have far wider repercussions. It’s taken 8 years for the finance industry to recover from the credit crunch, but it hasn’t yet regained the trust it once had. It would also be possible to imagine a prolonged undermining of the image of diesel technology and internal combustion engines as a truly disruptive opportunity for electric car makers such as Tesla.

Whilst we all hope for a positive outcome for the industry and all the jobs it provides, it will be nonetheless fascinating to see how the VW saga unfolds, and, if there was a systematic process to cheat, whether individuals felt pressured to comply, and, of course, how all of that will reflect upon the rest of engineering.