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Operations Team 2
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Operations Team 2
Volkswagen Emissions Scandal Case Study
Case Study Agenda
In this presentation we will examine the 2015 Volkswagen emissions scandal. This scandal was a defining moment for Volkswagen as a company. We will identify and analyze the key factors that led up to the scandal, as well as the key executives involved. We will discuss the fallout that ensued as a direct result of the actions taken by Volkswagen and our recommendations for actions that Volkswagen should take moving forward.
Agenda
Key Objectives
Objectives
- Identify the factors that led up to the scandal at Volkswagen
- Identify the timeline of events, company culture and key leadership personnel at Volkswagen prior to, during and in the direct aftermath of the scandal becoming public
- Understand the impact of the scandal on both internal and external shareholders
- Analyze the legal ramifications that Volkswagen faces as a direct result of their unethical operational processes
- Make strategic recommendations that will help Volkswagen moving into the future
Research
Analysis
Research Analysis
Operations Team 2 conducted extensive research regarding the 2015 Volkswagen emissions scandal. Using data from investigations whose facts are now public, the statements given from individuals with first hand knowledge of the actions taken by Volkswagen, and from credible publications that have meticulously collected data and published articles germane to the Volkswagen scandal, we can analyze the numerous factors that allowed the illegal actions to take place. We also researched the actions taken by Volkswagen in the direct aftermath of the scandal becoming public and up to the present day.
Recommendations
Recommendations
In this presentation, we will take a holistic approach to analyzing all of the facts surrounding the Volkswagen scandal. While there were numerous things that Volkswagen could have done differently to avoid acting in an illegal manner, they chose to operate unethically. Given the situation Volkswagen now finds itself in, we will make strategic recommendations for Volkswagen moving forward. These recommendations will encompass changes in leadership, oversight, company culture, transparency, and operational practices.
Executive Summary
Executive
Summary
The 2015 Volkswagen emissions scandal was a watershed moment in the auto industry and for environmental protection agencies around the world. The use of a so- called "Defeat Device" to fool emissions test was both illegal and a massive breach of public trust. The actions taken by Volkswagen have made significant impacts on company leadership, internal processes, as well as both customers and shareholders. The fallout from the scandal is still presently ongoing.
Timeline
Timeline
- September 18, 2015 - Volkswagen is ordered to recall more than 400,000 vehicles
- September 24, 2015 - Volkswagen admits to using an illegal software to cheat emissions regulations
- October 8, 2015 - Authorities raid the headquarters of Volkswagen
- December 5th, 2015 - Hundreds of lawsuits filed against Volkswagen in multiple countries
- June 2016 - Volkswagen agrees to pay billions in fines and damages.
- September 2016 - The first Volkswagen employee, James Liang, pleads guilty to charges relating to the emissions scandal
Key Data
Points
Key Data Points
- Volkswagen used the "Defeat Device" illegal software since at least 2008
- Initially, Volkswagen denied knowing they had done anything illegal
- The CEO initially denied any knowledge of wrongdoing
- Volkswagen faced billions of dollars in fines, reparations, and financial liabilities relating to the scandal
- Hundreds of lawsuits have been filed against Volkswagen in the wake of the scandal
- Volkswagen has been the subject of investigations by law enforcement agencies in multiple countries
Organizational Culture
Organizational
Culture
Leading up to the 2015 scandal, the culture at Volkswagen was insular and opaque. Many employees felt pressured to deliver results at any cost. Key leadership and executives reinforced this culture by demanding blind loyalty from the workforce. This created a culture where dissent was not tolerated. Union representatives were effectively paid off through higher negotiated pay and better job security. As long as they did the board's bidding, their compensation got better.
Volkswagen Current State of Affairs
Rebuilding the Volkswagen Image
Current Issues
Analysis
- Change their internal culture
- Change their focus
- Create a fresh start
- Move forward and onward from the scandal
How the Settlement Effected Current State of Affairs
Rebuilding the Volkswagen Image
- They have created a new brand symbol for the Volkswagen image.
- This branding demonstrates a new, fresh start with simplicity.
As part of the settlement.....
- Invest in education of electronic cars.
- Invest in infrastructure to produce electronic cars.
- They are committed to producing 22 million electric vehicles across seventy models in the next decade. (Business Radio, 2019)
- China is a large consumer of the electronic vehicles and Volkswagen has a strong presence with that country. (Business Radio, 2019)
How did Volkswagen arrive to this point?
How did Volkswagen arrive to this point?
- Evolve like all the auto makers in their industry.
- Several engineers, and top executives devised a plan to illegally install software onto millions of its vehicles. (Boston, Campo-Flores, & Viswanatha, 2017).
- Volkswagen’s “clean diesel” marketing campaign. (Ewing, 2017).
- Robert Bosch GmbH, owner of the biggest auto suppliers.
- 2007 a letter from Bosch to the management team at VW claiming that the software they provided could be illegal.
- Another letter from a concerned employee fearing discovery. (Merenda & Irwin, 2018)
- These activities concealed this scandal for a decade before the Environmental Protection Agency (EPA) exposed Volkswagen in 2015.
Balanced Scorecard Analysis
The Customer Perspective
- The emissions scandal shocked the vehicle industry.
- Trust has been lost.
- Operational check and balances need to be put into place.
- An external audit from a third party vendor
- Six years Volkswagen:
- Made a profit
- Committed fraud by selling defective cars
- Broke contracts
- Broke emission laws. (Boston, & Spector, 2015)
- The employees need to be held more accountable.
- Few associates made faulty decisions...while everyone are now suffering the consequences.
The Financial Perspective
- Auto industry leader worldwide.
- 10.14 million vehicles sold in 2014.
- $32 billion in fines.
- Clean air marketing campaign, clean vehicles.
- International Council on Clean Transportation (ICCT).
- Volkswagen’s $31 billion dollar brand name dropped by $10 billion.
- $7.3 billion held in reserves for the scandal expenses.
- Class-action lawsuits recalling the vehicles.
- September 2015, Volkswagen’s sales in the U.S did not meet their projected numbers.
- China, sales slowed.
- By cutting corners, Volkswagen did themselves a disservice.
Innovation/Learning Perspective
- Conduct and failures of people in key leadership positions.
- Company, culture and workplace ethics.
- Failures at VW were a product of a toxic and rigid corporate culture. (Verschoor, 2016)
- Culture was personified by former CEO, Martin Winterkorn.
- Under his leadership:
- 500,000 vehicles were produced with software designed to subvert the law and cheat emissions regulations.
- German governance structure called co-determination. (Elson & Ferrere & Goossen, 2015)
- This structure created a culture of bribing its employees to do the companies illegal bidding.
- German government as a stakeholder. (Ewing, 2016)
Recommendations
Failures in leadership, management, and operations management led Volkswagen to commit an illegal scandal that ultimately cost them more than $32 billion in fines.
Recommendations
for improvement
Leadership and Management
Leadership and Management
- "Dictatorship"
- Allowed the scandal to go unnoticed for some time
Recommendations:
1) Increase transparency amongst the entire organization (including executive, stakeholders, board of advisers, and employees)
2) Have a "Clean House" at the Executive level
3) Hire a Chief Ethics Officer
Operations Management
Operations Management Recommendation
- Muller's first order of business was to break existing mentality and operations
- Shifting away from measuring success via sales numbers
Recommendations:
1) Implement a Project Management Office (PMO)
2) Invest in a quality management system (i.e TQM or Six Sigma)
3) Set a new 'See something, say something' culture from the top down
References
References
Reference
Page
References - Page 1
Business Radio. (March 2019). Why the Volkswagen Diesel Scandal Hasn't Gone Away. Retrieved from https://knowledge.wharton.upenn.edu/article/volkswagen-diesel-scandal/
Boston, W., & Spector, M. (2015, Nov 04). Volkswagen's emissions-testing scandal widens; VW says recall could affect 800,000 more vehicles, stops U.S. sales of certain vehicles. Wall Street Journal (Online) Retrieved from https://search.proquest.com/docview/1729274551?accountid=33575
Boston, W., Campo-Flores, A., & Viswanatha, A. (2017). FBI Arrests Volkswagen Executive in Emissions Scandal; VW executive Oliver Schmidt is suspected of participating in a conspiracy to defraud the U.S. in connection with the emissions-cheating scandal. Wall Street Journal (Online). Retrieved from https://search.proquest.com/docview/1856837102?accountid=33575
Campbell, P. (2016). Volkswagen scandal involved 'dozens' of employees. The Financial Times Limited. Retrieved from https://search.proquest.com/docview/1812350302?accountid=33575
Conrath, C. (2000). Centralizing project control: project management offices may help keep corporate projects on track [Project Management 2000 symposium]. ComputerWorld Canada, 11. Retrieved from https://search.proquest.com/docview/219942948?accountid=33575
Ewing, J. (2015, October 29). Diesel scandal pushes Volkswagen to its first loss in over a decade: [Business/financial desk]. New York Times, p. B.1. Retrieved from https://search.proquest.com/docview/1727827914?accountid=33575
Ewing, J. (2017, March 16). Engineering a deception: What led to Volkswagen’s diesel scandal. Retrieved from The New York Times: https://www.nytimes.com/interactive/2017/business/volkswagen-diesel-emissions-timeline.html
Elson, C. M., Ferrere, C. K., & Goossen, N. J. (2015). The bug at Volkswagen: Lessons in Co‐Determination, ownership, and board structure. Journal of Applied Corporate Finance, 27(4), 36-43. doi:http://dx.doi.org/10.1111/jacf.12144Ewing, J. (2016, Jun 23). Volkswagen has been 'rewarded for failure,' shareholders say at meeting: [Business/Financial desk]. New York Times, Retrieved from https://search.proquest.com/docview/1798935611?accountid=33575
References - Page 2
Jacobs, D., & Kalbers, L. P. (2019). The Volkswagen diesel emissions scandal and accountability. The CPA Journal, 16-21. Retrieved from https://search.proquest.com/docview/2256519677?accountid=33575
Miller-Charlton, J. (2017). Leadership: The difference between success and failure. Journal; Newcastle-upon-Tyne (UK). Retrieved from https://search.proquest.com/docview/1872699379?accountid=33575
Milne, R. (2015). Volkswagen: System failure. The Financial Times Limited. Retrieved from https://search.proquest.com/docview/1739231066?accountid=33575
Merenda, M. J., & Irwin, M. (2018). Case Study: Volkswagen's Diesel Emissions Control Scandal. Journal of Strategic Innovation and Sustainability, 53-62. Retrieved from https://search.proquest.com/docview/2154503271?accountid=33575
McHugh, D., & Pylas, P. (2015). For VW, costs of scandal will be piling up. General Interest Periodicals--United States. Retrieved from https://search.proquest.com/docview/1719384938?accountid=33575
Nunes, M. F., & Park, C. L. (2016). Caught red-handed: the cost of the Volkswagen dieselgate. Journal of Global Responsibility, 288-302. Retrieved from https://search.proquest.com/docview/1830061808?accountid=33575
Shane, D. (2019). The SEC is accusing Volkswagen and its former CEO of 'massive fraud'. CNN Wire Service. Retrieved from https://search.proquest.com/docview/2191280797?accountid=33575
Verschoor, Curtis C,C.M.A., C.P.A. (2016). The Volkswagen problem. Strategic Finance, 97(8), 15-16. Retrieved from: https://search.proquest.com/docview/1768413950 ?accountid=33575
Welch, J. (2019). The Volkswagen recovery: leaving scandal in the dust. The Journal of Business Strategy, 3-13. Retrieved from https://search.proquest.com/docview/2229635094?accountid=33575