I consider Nick van Heck as an exceptional human being: in him, one may find both an unorthodox strategist and an unusual coach. He uses and lives Logos (rationale), Ethos (Value Building Behaviours) and Pathos (his emotional side) with a rare balance. He runs the elp Network. I encourage you to follow his company’s blog, different from this one and very relevant. I found Nick’s recent provocative reflection to be worth sharing with you, s it goes way beyond VW’s context. Cutting costs, yes but for what? When VW decides to cut cost and slash 30K jobs, “are they creating or reacting”? Enjoy the reading.
“Volkswagen wants to save €3.7 billion per year, and will cut 30k jobs over the coming four years. News articles have no choice but to mention how this restructuring follows the dieselgate software scandal, costing about €18b in settlement costs and compensation to consumers.
Yet, the question remains if and how these two very substantial events in the VW history are or should be connected. Is this latest job loss announcement the sign of starting to create the VW (business) model(s) of the future by transforming the current organization and ways of working, or is this merely a reaction to bring costs down (to industry benchmark levels) and recuperate some of the €18 billion spent on the scandal?
Cease the moment (finally) to bring costs down
According to many criteria, VW needs to work on cost efficiency: the operating margin of VW is far below its main rivals. Toyota makes about the same number of cars, with almost half the number of staff.
Clearly, the additional €18 billion spent on settling the scandal, has not helped their bottom line either. It seems unfair though, to (only) blame the scandal for the cost efficiency issue.
It looks as if management is taking the moment(um) to not only clean up the practices that generated illegal manipulation of test results, but also to question the wider strategy and business focus of VW. One can argue that this should have been done before or certainly irrespective of the scandal. VW is, however, not the first – and probably not the last either – to take the turbulent times for more deeply questioning the processes, the ways of working, habits and paradigms, ultimately the (entire) business model, ingrained in the VW organization.
Fit to do what?
As we have seen in other industries, cutting jobs is nevertheless only one part of the answer. However difficult and painful it is to reduce your workforce with 30k people, a key challenge for management is to figure out how to make VW more competitive tomorrow. Bringing costs at the level of Toyota, or GM, does not make your brand, proposition and your models more attractive to your target market. In the best case, it buys you time to do so.
Fixing today’s value capturing of the organization will not guarantee tomorrow’s value capturing. Research has indicated that the only way to sustainably capture value for your shareholders, is to create relevant and unique value for your target audience, over and over again. In the absence of clear value creation focus, companies run the risk of stumbling from one restructuring into the next cost benchmarking and cutting exercise… A reacting dynamic, in the absence of a creating one!
Reducing editorial staff does not make your newspaper more competitive in a digital world, putting your traditional large scale energy assets in a separate unit does not make you the agile energy (service) provider of the future, as reducing your staff will not make you the winning car company of the future.
The real transformation question, beyond restructuring today’s organization, is: how VW will position in the emerging mobility landscape. This will require the company to fundamentally question why, what and how they do things. This is not just about doing more of the same (with fewer people), but most likely about doing different. The good news is that the cost savings should build the oxygen in the organization to develop new, better and different ways to create value. Which is why the cost savings are needed, even overdue.
This will require the remaining 570k people in the VW organization to transform what and how they do things. While VW announces this as a unique moment in the history of the German car brand, we fail to find answers to that question in this announcement – besides electric cars and software. We are all curious to read what has not been announced yet (because we are not ready, because it is not there yet, or because we prefer to keep it internal?), and would encourage the management and the labour unions to put as much attention into this part of story.
Experience indicates that reconciling these two movements – cutting costs in today’s operations while building tomorrow’s business model- is a challenging piece of leadership work. Notice how many other companies in industries where the need to transform has been around for decades have failed to successfully transform (e.g. media, or energy companies).
By the way: ironically, this is likely to require VW to now… really adopt software as an essential building block into its business…
How fit are you for the future?
In many industries, the question is not different: how will our economic engine turn in 3, or 5 years from now? And what does that require from our engine today.
What are you reacting to or creating for?