Leading Sustainable Organizations
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VW is discovering a stark Darwinian reality: Sustainability kills.
Sustainability is an evolutionary force of creative market destruction and is slowly weeding out the firms and products unfit for a sustainable future.
The recurring narrative I hear about the VW crisis is that it is an issue of corporate fraud, plain and simple. While that is true — fraud is intentional perversion of the truth for financial gain — it ignores the reason VW was driven to deceit. The underlying cause was that VW’s chosen technology, the diesel engine, failed to meet 21st century sustainability standards in key markets.
The problem for VW began with the financial crisis of 2008. With GM and the other motor giants on the verge of bankruptcy and dependent on government support, industry opponents were not in a position to oppose the stricter emission and fuel economy standards that had been in the works for a decade.
To put it simply, the standards for what constitutes a “sustainable automobile” shifted. Ford, GM, Toyota, and Honda responded by commercial investments in hybrid-electric technology. VW did not.
The loyalty to diesel power is uniquely German — after all, its was named for German engineer Rudolph Diesel. VW executives were dismissive of hybrids, but staying loyal to their diesel-fueled engines was problematic with the changing standards. Unable to consistently meet EPA emissions standards, they turned to famous German engineering — not to solve the problem, but to circumvent it. And the public finally learned what “Fahrvergnügen” actually meant.
The Great Sustainability Extinction
VW is a multi-brand behemoth and point of national German pride. As the largest auto company by volume with over $12 billion in annual profits, VW is not going to disappear anytime soon. But the “clean diesel” concept in passenger cars is unlikely to recover in the United States. And this illustrates where sustainability’s natural selection occurs. Not at the company or brand level per se, but at the product and production levels.
I remember watching managers struggle with this while leading an in-company executive development program at a European conglomerate in 2011.