Executive Coach Revel Gordon writes on the crisis currently facing Volkswagen and the lessons to be learned from the experience of electric carmaker, Tesla. Alignment of what a company says it stands for and the behaviours that show up at work can not only contribute to better performance but also help keep the planet in better shape.
As the German carmaker VW struggles to recover from a series of scandals that have tarnished its once-proud brand, cost the CEO his job, and driven its share price off a cliff, considering the case of the electric car maker Tesla might offer some useful insights.
Descriptions of Tesla’s CEO Elon Musk are not always flattering. Likened to Steve Jobs, Musk apparently shares many of the Apple founder’s more abrasive traits. His authorised biography highlights his driven and demanding nature, with even his closest lieutenants acknowledging that Musk is ‘incredibly difficult to work for’. Most people would not enjoy life at Tesla, and its culture would not suit most businesses – VW’s included.
But where the German behemoth can draw a valuable lesson from the upstart maker of electric cars is in the crystal clear alignment between Tesla’s stated vision and its actual organisational culture. It is here, as much as anywhere else, that VW has lost its way.
The VW crisis in a nutshell
In September media around the world reported that VW’s diesel engines had ‘defeat’ software built into them designed to cheat US emissions standards testing. The system could apparently detect when an emissions test was in progress, and would change the car’s settings to meet US Environmental Protection Agency standards. As soon as the test was over, the engine would reportedly revert to normal, improving fuel economy but also pumping out smog-producing nitrogen oxide at up to 40 times above USA EPA (Environmental Protection Agency) limits. Eleven million cars were reported to have been affected worldwide. Following the revelations, CEO Martin Winterkorn resigned, and VW’s share price fell 44%.
In November the scandal widened to include VW’s petrol engine cars, when the company advised that it had identified ‘irregularities’ in the amount of CO2 these vehicles were producing. VW may end up having to pay billions of Euros in additional environmental taxes to governments as a result. With VW’s sales falling sharply, its parent company Porsche has reportedly just agreed terms on a €20billion loan to help VW survive.
A failure of culture
From the moment the scandal broke, it appeared evident that VW’s situation was not the work of a rogue agent or small group, but rather a sophisticated effort involving a wide range of stakeholders. It has recently been reported that Winterkorn had been aware of the defeat technology for over a year. It seems VW’s polluted culture went all the way to the top.
VW claims to stand for ‘Responsibility and Sustainability’. Clearly, the company has not lived up to these values. If it had, the current scandals would simply not have been possible. At its heart, the VW crisis demonstrates a failure of culture.
Tesla’s culture drives its success
As the German carmaker struggles to recover, it would do well to consider Tesla’s experience. For most of its history, Tesla has lacked the financial muscle and scale of the major carmakers. However, a key strength has been its clearly articulated vision, supported by an uncompromising culture.
Tesla exists to bring mass-market electric cars to the world. This aligns with Musk’s broader life mission: to save humanity from the impacts of climate change. To achieve this, Tesla has a culture that is relentlessly focused on engineering excellence and innovation. “The fastest way to lose an argument at Tesla is to say [we should do this because] ‘such and such a company does it this way’”, explained Tesla’s UK and Ireland director Georg Ell. Whereas VW appears to have tried to cheat its way around a tough technical challenge, tackling such challenges head on has been part of Tesla’s DNA since its inception.
If you’d asked an automotive expert when Tesla was founded in 2003 how to make a small fortune from electric cars, they may well have replied: “Invest a large one.” Electric vehicles were ugly and slow; and the battery technology at the time meant that if you drove one to the local shops, you’d need to recharge it for the trip home.
The easy answer to the range issue was to create a hybrid petrol/electric vehicle, which is the compromise Toyota settled for when it launched the Prius. However, this half-measure approach aligned neither with Tesla’s mission nor its values. Instead Musk pushed his engineers to find ways to cram more and more battery power into their designs, thereby increasing how far the car could drive on a single charge. This created a new problem: the batteries had a nasty propensity to blow up, and the more batteries there were, the bigger the bang. Rather than give up, Tesla’s engineers proceeded to explode literally thousands of batteries in different configurations, until they had worked out how to make them safe.
Tesla ground away at these and other challenges for years, with the company coming within a whisker of folding. Yet its vision and culture helped sustain it, providing a north star in even the darkest moments. Then in 2012, Tesla launched the Model S, bringing electric cars to the mainstream for the first time. A seven-seater luxury family sedan that can drive 500 km on a single charge and out-accelerate a Ferrari, the Model S has won the prestigious Consumer Reports Car of the Year prize two years in a row. To appreciate just how paradigm-breaking the vehicle is, consider this: in October, Model S owners woke up to find that their car had downloaded a software update overnight that now allows the Model S to drive itself in freeway conditions.
Tesla’s commitment to bringing electric cars to the mainstream led it to open up all of its patents last year. This move was designed to give laggard mainstream auto companies a leg up in the electric car market. “It is impossible for Tesla to build electric cars fast enough to address the carbon crisis”, said Musk. He needed the larger car companies to get on board, and set out to help them by giving them access to the innovations his engineers had worked so hard to develop.
The bottom line
Tesla’s stock is worth seven times what it was two years ago. Compare this to VW’s share price, which is still down more than 25% three months after the scandal broke. Clear vision and a high performance culture are not just ‘nice to have’. As Patrick Lencioni puts it in his latest book, The Advantage, organisational health is the one sustainable competitive differentiator in today’s world.
Poor culture leads to poor performance. That has been my experience across the range of industries I’ve worked with over a long career. In VW’s case, it has had very serious consequences for the company.
By contrast, leaders who focus on developing a culture that doesn’t just exist as a set of values on paper, but shows up in how people work, every day, throughout the organisation, will have gone a long way towards driving positive bottom line results. Customers, employees, shareholders – and maybe even the planet - will be thankful.
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