“German companies tend to emphasize cost efficiency over creativity, which would lead to real innovation.”

Dr. Serhan Ili, CEO and founder at ILI CONSULTING

Don’t manipulate – innovate!

An expert interview about Volkswagen’s emission scandal and Winterkorn’s resignation: Don’t manipulate – innovate!

The emission manipulation scandal at Volkswagen AG has substantially broadened over the past days. Volkswagen’s CEO, Martin Winterkorn, has resigned on September 23, 2015. About 11 million Diesel-powered cars worldwide seem to include the ‘defeat device’. A lot of background information is still publicly unknown. Therefore, innoboard.de now presents an interview with the automotive expert and consultant Dr. Serhan Ili.

Innoboard: Software for emission control was relatively unknown to the public until last week – is it a new technology?

Dr. Serhan Ili: No, software solutions for recognizing regulatory test cycles are not new at all. For example, algorithms that could identify when a car is being tested for compliance with standards of the Environmental Protection Agency (EPA) have existed for years. Car manufacturers tend to experiment a lot with respect to emission controls within the legal framework by optimizing emissions with regard to the test cycles. Unfortunately, the differences in the emissions during the test cycles and normal driving behavior are substantial – especially for Diesel-powered engines. Here, real innovation would be necessary. However, in a recent article in the German edition of the Harvard Business Review, we have explained that many German companies tend to emphasize cost efficiency over creativity, which would lead to real innovation.

Who has developed the ‘defeat device’ and is Volkswagen’s former CEO Winterkorn responsible?

Currently, we do not know who is actually responsible for the development of the defeat device. In his resignation statement, Martin Winterkorn emphasized that he was not aware of any wrongdoing on his part. Furthermore, we do not know who carried out the programming of the software. But just imagine how a Volkswagen software engineer feels while developing such a device – most of these persons are real car guys! But they often have severe budget constraints for innovation projects with a high degree of novelty – including complex projects for substantially reducing emissions. We have recently published a study of innovation in the German DAX 30 companies. Most unfortunately, a key finding of this study is that most large German firms overestimate their innovativeness.

So would innovation have been the better option from the beginning?

Yes, indeed! Companies should pursue real innovation and should not choose manipulation over innovation. Instead, managers should act according to the slogan: ’Don’t manipulate – innovate!’ Take a second and imagine the number of innovation projects that Volkswagen could have launched for just 1 percent ($180 million) of the possible penalties of $18 billion in the USA! This could have boosted existing solutions in the field of emission reduction and beyond. In addition, firms should be aware of the negative internal consequences with respect to the motivation and commitment of their employees. Again, please ask yourself how an automotive engineer feels when he or she has to develop a ‘defeat device’ instead of product innovations to lower emissions in real terms.

How does the scandal affect Volkswagen’s image and reputation? 

This is a major crisis for Volkswagen with negative effects on image and reputation. Here, I see two specific points worth mentioning. First, we get the very negative impression that Volkswagen tried to play down or even hide the surprising findings in emission tests even after initial inquiries. The case has started over a year ago with the first inquiries of the EPA concerning the emission test results – so the management could have reacted in the meantime. Second, Volkswagen has tried hard in recent years to strengthen the public perception of its innovation activities in green technology and sustainability. Here, the emission scandal has led to a substantial loss of credibility.

Can the crisis also be an opportunity for Volkswagen?

Even if it may be hard to see opportunities at the height of a crisis, I fully agree! Every crisis also provides new opportunities. Turning such a strong crisis into an opportunity is hard work, however, and it needs particular competencies for innovation and growth. In particular, it requires more of what is limited in many large firms anyway: entrepreneurship and a clear sense for business opportunities together with resilience and the willingness to pass major hurdles along the way. Based on a three-step process of crisis management, strategic redirection, and real innovation, Volkswagen and its customers may in fact benefit from this scandal. But this requires a long-term perspective because it will definitely take time – years rather than months. Anyway, there is no alternative for achieving sustained firm performance. In the long run, real innovation is the only option.