Featured case series: The Volkswagen Group

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The case

Who – the protagonists

Martin Winterkorn, CEO of Volkswagen AG. and Ferdinand Piëch, Chairman of the Supervisory Board and major shareholder.

What?

In 2015, Ferdinand Piëch publicly declared: I’m keeping my distance from Winterkorn’. This heralded a huge management crisis and significant drop in Volkswagen’s market value. Ultimately the board declared its confidence in Winterkorn and Piëch resigned. By September 2015 the ‘dieselgate’ scandal erupVW1ted as it emerged that Volkswagen had been manipulating its engine emission results.

Why?

Before ‘dieselgate’ there were already significant conflicts surrounding the corporation’s future orientation. The strong growth and financial success of the Volkswagen Group appeared to be masking fundamental problems arising from the complexity of the enterprise and its market position. And it wouldn’t be the first car company to run into serious problems – Toyota had also overreached itself in 2012.

When?

In 1934, Adolf Hitler called for a car to be built for broad sections of the population that would be ‘fit for the autobahn’ and capable of cruising speeds of 100km/h. The first VW Beetle was produced in 1945 and a decade later, the one millionth VW Beetle rolled off the production line. The group now controls leading car brands such as Porsche, Audi, Bugatti, Lamborghini and VW.

VW2Where?

Volkswagen has an extensive global production network, operating over 100 sites and factories worldwide.

Key quote

‘The test manipulation means a moral and political disaster for Volkswagen ... We can only apologise and call upon customers, authorities and investors to give us the opportunity to make amends.’ – Berthold Huber, Interim Chairman of the Supervisory Board.

What next?

Case A showcases an amazing success story, but in case B the survival of the company is in danger. How could this happen? How can they save the company? The ‘dieselgate’ scandal revealed serious ethical and cultural problems that went far beyond the classical topics of managing a multi-business firm. Can the ‘dieselgate’ scandal explored in case B be traced back to events depicted in case A?

 
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The authors

VWGünter Müller-Stewens and Joachim Stonig

Günter and Joachim explain their interest in the Volkswagen Group as it moved from being an extremely successful car manufacturer to one immersed in a leadership crisis.

From success to crisis

When we started writing the case, the Volkswagen Group was an extremely successful and very diversified car producer with a clear objective of becoming the world’s number one. This is why we set out to portray the group company in a case focused on corporate strategy.

Then, the course of events, namely the leadership crisis between Piëch and Winterkorn as well as the infamous ‘dieselgate’ convinced us to stress another facet of Volkswagen: corporate governance structure.

Published sourcesVW4

The main benefit of writing a case based on published sources in the Volkswagen case was the ability to critically focus on the weaknesses and challenges of the company. Some of the questions, especially in case B, focus on how Volkswagen’s culture and leadership style enabled a multitude of corporate scandals in the last decades. It would have been challenging to get a case release from the company in such a critical situation.

A slippery slope

We think the case highlights the very strong and hierarchical corporate culture that reigned in the Volkswagen Group. Once the first ‘defeat device’ was installed to meet unrealistic targets, initially on a small scale, the path towards a scandal of large magnitude was open. No employee was willing to reverse the course and admit that Volkswagen simply could not produce a diesel engine that would be clean enough. Top management, unable or unwilling to see the fraud, then gladly adapted the new ‘technology’ on many of the group’s car models.

VW5

Corporate culture

This case series highlights the importance of developing a corporate culture that encourages learning from failures and open feedback, as well as an accepted system for whistle-blowing.

The importance of discussing measures to prevent or deal with fraud and scandals, as shown in case B, were just recently exemplified by Wells Fargo Bank. Or if you look at the problems Samsung has with the Note 7 in the face of tough competition with Apple the question is always, how much pressure can top management put on the next level without risking too much?

Key lesson

This case series demonstrates how fast you can switch from being a hero who is adored by everybody, to being the scapegoat and losing your job. It teaches you to stay humble and always stay in close contact with reality – not so easy for a top manager.

About the authors

Günter Müller-Stewens is Chair Professor and Director at the Institute of Management, University of St. Gallen.
e guenter.mueller-stewens@unisg.ch

Joachim Stonig is a Doctoral Candidate and Research Assistant at the Institute of Management, University of St. Gallen.
 

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