Misconduct in the auto sector has had quite a history. German group Volkswagen may find itself in the midst of the storm right now, but the application of defeat devices actually dates back to the early 1970s. Now that the industry is caught in the headlights, it may be the ideal moment to chart a course to a change in corporate culture.
So how do we build a car company that gets it right? Well, at its heart, this is a question of priorities. It is important that the CEO and top management team understand the need to shift their attention away from forcing an ill-formed business model to market through the regulatory system by hook or by crook. Instead, they should be willing to adapt their technology and strategy to glide through unblemished.
Top management team dynamics
Changing corporate culture in response to a public outcry requires top managers with experience in public-facing jobs. Think marketing, sales and customer service. These managers are known to be more vigilant and serve a broader range of stakeholders. Currently, top managers are more concerned with efficiency, echoing their background in functional jobs such as operations, finance and accounting.
Firms that appoint this kind of manager to the executive suite tend to be better equipped to read the environment they are operating in and are more effective in devising suitable responses when corporate strategy and environmental requirements misalign.
Top management must also avoid a common trap in many industries. The career horizon of the CEO and top management team members will be crucial as they consider how best to design and formulate long-term strategy. The natural career path of managers, especially in pronounced hierarchical organisations which are typical in the auto sector, tends to give us executive teams where most are older than 55. The average age of the top managers at VW was 59 in 2014.
This means you have teams largely comprised of executives nearing the end of their natural career, a position which in some circumstances can encourage greater concern with short-term accounting goals than with decisions that safeguard the more distant future of the organisation. This makes it more likely that less support will be made available for designing technologies that see the firm fit for the future.
The next step to building a more flexible car company is to look down the chain towards the middle managers. These are the people who can bring local expertise and knowledge about technological development that can only become diluted as strategy decisions are moved up into the boardroom. It is these people who will be instrumental in directing a new field of vision at auto firms.
Middle managers are better able to enact the radical change that is needed in the automotive sector. They are central to the firms’ informal social network. They can embed new ethical standards that focus on advances in technology that genuinely create a desired result.
The final piece of the jigsaw is a simple one. We can’t promote every middle manager to executive level, but we can make sure they have a permanent and robust way of being heard by top managers. Investment in that interface between the top management team and the middle managers of our new car firm will be essential if we are to avoid a common flaw seen in heavily consolidated and hierarchical organisations.
When VW sought to explain how the emissions cheating scandal had taken root, it claimed that top management was not aware of fraudulent practices. This defence is proof that no effective liaison existed with its middle managers, undermining the whole management structure. Effective communication will increase control, facilitate timely information exchange and keep top managers closely informed on the operational side of activities. Simultaneously, it will allow middle managers to champion initiatives and secure support and legitimacy in early stages of research and development.
This blueprint for managing a car firm might seem simple, but changing company culture is notoriously hard to achieve, especially in an industry where some firms have historically committed to tactics that go against rather than work with institutional standards.
The VW scandal has given us an opportunity though. The auto industry is globally important, and as it finds itself under increased scrutiny, it should allow management culture to be reshaped to shift the direction of strategy and harness talent throughout its ranks.