What should Volkswagen do? – MBA Learnings

We started our second year with a 1 week pre-term call on Leading and Managing Crises. We discussed responses to multiple crises – both good and bad. And, as I was on the lookout for a new crisis to apply my learning, Volkswagen appeared in the news for what has to rank among the dumbest decisions of all time. How Volkswagen thought they could get away with a program that cheats the emissions test is anyone’s guess. But, common sense isn’t very common and this is a good illustration that groups of people in “good” companies can make some really bad decisions.

A framework we used for discussing crisis response was called “The Trust Radar.”

Trust RadarSource and Credit: Reputation Rules by Prof Daniel Diermeier

The rationale is that crises are not just disasters that need to be managed. Instead, they need to be viewed as turning points – manage it well, for example, and you could win significant trust. In all star examples of crisis management – the 1980s Tylenol crisis or the 2005 Southwest crisis when a plane slid off the ice, crashed into a car and killed a six-year old boy, leadership scored high on each of the 4 components of the trust radar.

First, they demonstrated transparency by getting on the scene quickly and being very clear about what they knew, what they didn’t know and what they were doing to get the information. This is in contrast to British Petroleum’s (BP) response to the oil spill. No one seemed to have a clue as to what was going on.

Second, they demonstrate expertise where necessary. In crises that involve technical issues, it is critical that the public feels the company knows whats going on and how it can be fixed. Again, BP spent more time trying to siphon blame than fixing the problem in the immediate aftermath of the skill.

Third, they show commitment. Often, the first step here is by simply making sure the CEO shows up. There is often nothing more important than reputation and the CEO’s presence underlines that. However, the best show of commitment is doing what it takes to fix the problem. This generally involves a huge investment into product recalls and compensation for damages.

Finally, they demonstrate empathy. Company’s and executives aren’t trusted by the public. This step is critical in making sure the people in the affected area understand that they are cared for.

So, that leads us to – what can Volkswagen do?

Firing the CEO was a first step. It shows commitment. However, they have a long way to go. Among the 4 components of radar, commitment is the one that requires most attention. Being transparent and empathetic will help, but to a lesser extent. And, it is clear they have technical expertise – too much of it, some might argue. Aside from investing in product recalls and fines, I think a critical step towards demonstrating commitment to fixing the problem would be to conduct a thorough investigation into the groups that recommended and decided this (it can’t just be the CEO). They need to be fired/fined and punished in some way. Such decisions show a failure of ethics in the organization and hard measures are required.

While the new CEO will definitely need to attempt to score as high as possible on the 4 components of the trust radar, the Volkswagen case illustrates one of the hardest challenges of rebuilding reputation – you cannot talk yourself out of a problem that you’ve acted yourself into.

Companies, like humans, are trusted because of the character they exhibit. And, demonstrating good character is a long term game. Volkswagen have a long and painful road ahead.

0 thoughts on “What should Volkswagen do? – MBA Learnings

  1. As the owner of a Golf TDI this is especially near & dear to my heart!

    For me, personally, a commitment on behalf of the company to ensure that my car does not diminish in value (either from being banned from the road a la California, nor by any significant impact to fuel economy nor performance).

    I have LOVED my TDI for years and have strongly recommended its purchase to many of my friends. I 100% agree that commitment to making it right is the most important thing for VW to demonstrate. It would be interesting to see hypothesis about amount invested now versus future sales to balance how much money could be “rationally” invested before it stops paying off in basic capitallistic terms.

    I haven’t seen this framework before — thank you for sharing.

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