Promoting Real Innovation at Volkswagen: Jump to the Next Curve or Die!

Volkswagen experiences the worst crisis of its history, and the long-term consequences of the emission scandal are still unclear. The company has reacted already, and the new CEO of Volkswagen and former CEO of Porsche, Matthias Müller, has announced in the Volkswagen employee meeting today (October 6, 2015) thorough investigations and analyses of the emission manipulations. To save the company and to potentially bring Volkswagen back to previous strength, Müller needs to consider three major steps in the upcoming months and years: crisis management, strategic redirection, and real innovation. The third step – real innovation – may be the most difficult one, but there is no alternative if Volkswagen is to succeed in the long run. Despite the challenges associated with real innovation, it provides major opportunities – even if it may be difficult for Volkswagen to spot these opportunities at the height of a crisis.

Promoters of innovation

An innovation needs a promoter, who actively supports and champions the innovation inside a firm. Every new idea needs to overcome barriers throughout the process towards finally becoming a successful new product, process, or business model. These organizational barriers and the resistance to innovation will be particularly pronounced if a new idea involves a high degree of novelty. Already years ago, various studies by experts from ILI CONSULTING AG and several other researchers have shown that an innovation either finds a promoter or dies. A promoter helps to reduce resistance to a new idea, provides budget for an innovation project, and helps to develop an initial market for the innovation. In many cases of successful innovation, the CEO, CTO or high-ranking managers from a firm’s R&D or marketing department promoted the innovation from initial idea to final market launch.


The dark side of promoters

Successful innovation without high-ranking support will remain an exception in firms. At the same time, however, the promoters of some innovations and technologies may also block other, competing innovations and products. This direct or indirect blocking of promising alternative innovations and products constitutes the dark side of innovation promoters in firms. Based on their hierarchical power, these persons may not only support ‘their’ innovation projects and new technologies, but they may also prevent competing projects from achieving their full potential. In fact, there may be good reasons for such behavior. If a firm is the market leader in a particular technology, it may be rational to further support this technology rather than immediately adopting a competing technology. At some point, however, it will typically become irrational to continue betting on the established technology. Instead, firms will have to jump to the next technology curve.


The case of Volkswagen

Crisis management, strategic redirection, and real innovation – each of these three major steps into Volkswagen’s future is strongly affected by competing engine technologies. Volkswagen has already reacted to the emission scandal: the heads of research and development of the brands Volkswagen, Audi, and Porsche have been suspended in response to the emission scandal – Heinz-Jakob Neusser, Ulrich Hackenberg, and Wolfgang Hatz. These three top managers are leading experts in the traditional combustion engines, and their careers largely reflect this technological focus. They have also strongly supported traditional gasoline-operated and diesel-operated engines in the past. With these enthusiasts for traditional technologies leaving, Volkswagen now has the opportunity to pursue real innovation in the field of engine technology.


Engine innovation instead of emission manipulation

For Volkswagen, the crisis offers great possibilities to fully capitalize on the benefits of new engine technologies, such as electric and fuel cell engines, without the limiting influence of the promoters of traditional technologies. It is time to move on! It is not an option anymore to wait for European legislators to further protect the traditional combustion engine – despite the comfortable competitive position that the Volkswagen Group has in this field. Furthermore, it should never have been an option to evade emission tests by means of manipulation software. So what about excelling in real innovation – particularly in the field of new engine technologies? Yes, this is the way to go!


Diesel and gasoline engines

In light of the Volkswagen emission scandal, various environmental activists call for completely banning diesel engines. In addition, several automotive experts expect a dramatically diminishing importance of Diesel engines in future cars. While gasoline-operated engines are not (yet) affected by the manipulations, the combustion engine generally represents the old technology curve. There are important extensions to this curve, such as plug-in hybrid engines, which prolong the competitive advantage that Volkswagen and other firms have in this technology. While there may be several use cases for which combustion engines continue to be superior to alternative technologies, a clear trend towards new engine types is expected – it is more a matter of when exactly the markets will shift. This clearly is a threat to Volkswagen because it is a lot easier for established and potential new competitors, such as Google and Apple, to attack Volkswagen’s competitive position in these new fields, e.g. electric engines.


Electric and fuel cell engines

Volkswagen, Audi and Porsche have all significantly invested in electric engines, but the combustion engine was clearly dominant so far. Accordingly, the substantial research and development activities in new technology fields, e.g. electric engines, should be further extended and accelerated in response to the emission scandal. Beyond the electric engine, further technologies deserve growing attention. In particular, a renewed interest in fuel cell technology could be noted for some years, and it could be observed at the recent IAA Cars 2015. Fuel cells are not a new technology – early scientific research can be traced back to 1801, and Daimler presented a fuel cell concept car in 1994. Now, Daimler plans on debuting its first fuel-cell vehicle in 2017, and BMW expects profitable components in series application by 2020. This technology provides major opportunities, and it deserves full attention by Volkswagen. Innovation in new engine technologies is key to sustaining Volkswagen’s strong competitive position despite the fundamental technology shift from combustion engines to electric and fuel cell engines.


The time is now

The Volkswagen Group has already invested heavily into developing new engine technologies, and it is actually leading in some dimensions. Nonetheless, major competitors, such as Toyota, seem to be ahead in a number of dimensions, and they are particularly leading in the public perception with respect to hybrid, electric, and fuel cell engines. It may well be that Volkswagen has not fully leveraged its investments and competencies in these fields so far. Now is the time to act accordingly! If Volkswagen starts to increasingly focus on new engine technologies, it may well become a leader in alternative engine solutions in the future. In this respect, the crisis is in fact an opportunity for the Volkswagen Group!


Jump or die

Becoming a leader in new engine technologies further would be an appropriate and convincing reaction to the emission scandal. It is a central step for regaining at least part of the credibility that Volkswagen has lost in the current crisis. Volkswagen’s innovation capacity is strong, and this capacity should now further flourish in the field of new engine technologies. Like many other firms, Volkswagen and its top managers do not really have a choice. They have to promote real innovation. There is no realistic alternative because the future evolution of engine technologies demands: jump to the next curve – or die!