Volkswagen’s Fatal Flaw: Its Corporate Structure

A lot has been written about Volkswagen since the news broke that it engineered its diesel cars to cheat on emissions tests. The German auto giant has been criticized for losing its image of “hippie culture” and turning into “just another ‘soulless’ organization,” making decisions not based upon what’s good for the customer but what it determined was best for profits.

The scandal itself has been bad for VW and its customers, many of which feel let down by a company they trusted. VW’s CEO, Martin Winterkorn, was forced to resign over the deception, and as many as 11 million cars now need to be brought up to standard. It’s difficult to recover trust when you actively work at deceiving your customers, but this story has revealed a deeper-seated flaw for Volkswagen: a seemingly closed-off culture where all decision-making was reportedly handled by a core group of senior executives. And it’s this culture that will need to change for VW to rebuild the trust that has been pared away.

A dated structure

According to industry experts, VW had a siloed, “top down” corporate structure where decision-making “relied on a strong leader and a small group of key advisers.” This type of structure not only makes the organization slow to respond to changes in the marketplace, it leaves the organization with glaring blind spots; a less command-and-control structure could allow voices outside of the C-suite to be heard. These voices, many of which likely have direct exposure to the product and potential customers, can often fill in the gaps the C-suite doesn’t know to exist.

This approach to corporate culture is dated and ineffective as it leaves the vast majority of employees feeling “out of the loop,” devalued and not trusted. When employees don’t feel like they have autonomy, their engagement drops. And as opposed to employees who work in a more fluid structure, they’re likely not comfortable bringing their concerns, or even bad news, to their supervisors and are not motivated to put the company’s well-being first.

The linchpin to having a thriving, engaged workforce is creating a sense of ownership among that workforce. As author Jeff Haden says in Inc., “I care when I’m in charge and feel empowered to do what’s right.” And it’s that sense of empowerment that allows employees to feel they can give bad news to a superior. Without it, what’s “right” becomes less about what’s right for the company (mitigating fallout) than what’s right for the employee (protecting their position). Had VW had a structure where alternate voices could be heard and, more importantly, respected, perhaps this event may never have occurred, or at least been lessened.

What VW needs is a corporate restructure that is leaner and more agile: a less-formalized but more fluid hierarchy that allows the people to feel supported in speaking up when issues arise and to offer suggestions on how to resolve the issue without fear of their ideas or, at worst, themselves being dismissed. Ultimate decision-making still rests in the C-suite, but without open communication that considers the relationships from inside the organization to those that directly impact customer loyalty and experience, those decisions will never be fully representative or comprehensive.

Moving forward, if VW wants to bring its corporate culture into the 21st century, it needs to rethink how it operates. Although Winterkorn was in the process of restructuring the organization into smaller holding companies when the news broke, that restructuring didn’t address the apparent lack of communication throughout the hierarchy. It still favored a top-down approach. It would have been a restructuring without a culture change. (A culture is made up of the behaviors of the individuals.) And it’s VW’s culture that needs restructuring, not its flow chart.

A lesson from GM

VW would do well to follow the lead of GM under its current CEO, Mary Barra.Brought in at a similar time for GM, when it faced its own disastrous ignition switch recall scandal, Barra took the helm with confidence and full accountability. Rather than hedge or deflect, Barra took responsibility on behalf of GM and promised to not only make things right with the recall but to put measures in place to avoid similar mistakes. She also set about changing the old, insular, hierarchical culture at GM, starting with her own approach to change the behaviors that are holding back progress.

In the year and a half since being promoted, Barra has assumed an active role in taking GM from “survival mode” of trying to overcome bankruptcy and its Cobalt recall to a company that she says has a “can-do, entrepreneurial spirit.”To that end, she assembled 300 of GM’s top executives to brainstorm the one thing they’d need to bring to the corporate culture that would turn it around. The executives were on board and agreed that to thrive, and get out from under the stifling, closed-off culture, they’d need more candor, accountability and, above all else, “the tenacity to win.”

Turning around the culture of a company as large, diverse and sprawling as GM is a massive undertaking, and one that cannot be accomplished in a few weeks. But by making it her mission as CEO, Barra has a goal around which her team can coalesce. And they are starting to see results.

Volkswagen can regain the trust and respect of its customers, but it needs to address the culture it has built, rather than just the structure it functions under. It has some good models to follow, if it chooses. Only by bringing in more candor and open communication can VW regain the reputation and trust it has worked years to build up with its customers. The question then becomes just how willing the incoming executives will be to make the necessary changes in how they make decisions and whether they’ll be more inclusive. It would be a shame if the top floor of the high-rise executive office building in the company’s main factory in Wolfsburg, Germany continues to remain the location where all decisions require approval.

This article first appeared on Keith’s Linkedin blog. To get the latest from Keith, follow him on Facebook, Twitter, and YouTube.

Image courtesy of Diederik Lapperre/Flickr

Keith Ferrazzi

Keith Ferrazzi


New York Times best-selling author, speaker

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