los límites de la innovación incremental auge y crisis...

1Chair Sociology / Organisation, Migration, Participation, Department of Social Science, Ruhr-Universität Bochum

Los límites de la innovación incrementalAuge y crisis de la Volkswagen en los 2010s

Ludger Pries

Conferencia InternacionalNuevos Retos ante el Auge del Sector Automotor en México

Universidad Nacional Autónoma de México, 14‐15 Marzo 2013

1. El éxito de los ‘tres grandes’ automotrizes Alemanas2. German Carmakers in EU and World3. Comparing Volkswagen and BMW: Strategies and Challenges


1. The success of the ‘German Big Three’

0

2.000

4.000

6.000

8.000

10.000

12.000

1998199920002001200220032004200520062007200820092010201120122013

Source: Own data collection based on www.oica.net

Automobile production by companies1998 - 2014, in 1.000 units

GM

Ford

Toyota-Daihatsu

Volkswagen

PSA PeugeotCitroenHonda

Nissan

Hyundai-Kia

Fiat-Iveco

Renault-Dacia-SamsungMitsubishi

Suzuki-Maruti

Mazda

BMW

Daimler (ohneChrysler)Chrysler (bis2012)


50

60

70

80

90

100

110

120

130

140

Mar. 08

May. 08

Jul. 08Sep. 08Nov. 08

Jan. 09Mar. 09

May. 09


Jan. 10Mar. 10

May. 10


Jan. 11Mar. 11

May. 11


Jan. 12Mar. 12

May. 12

Jul. 12Sep 12Nov 12

Jan 13Mar. 13

May. 13

Jul 13Sep 13Nov 13

Jan 14Mar. 14

May. 14

Jul 14Sep 14Nov 14

Jan 15Mar. 15

May. 15

Production Index of German Automobile Industry 2008 to 2015

Source: Statistisches Bundesamt, Wiesbaden Stand: 14.07.2015 https://www‐genesis.destatis.de/genesis/online

approxim

ately in €billion



Volkswagen BMWCompanyStructure/CapitalStrategy

• goal: international leadership (“Strategy 2018”)

• exceptional co‐determination• early internationalisation• strong investment in new plants

• Going international: 60 % of production in EU, 17 % in NAFTA, 13 % China

• Substantial green turn, productsAND company structure reorganised

ProductStructure/MarketStrategy

• acquisition of brands + JV• economies of scale and scope by Modular Transverse Matrix/MQB

• full‐product‐range‚complemented at the top‘

• Triple‐Orientation: strong, dy‐namic premium‐cars + greening + technology focus

• Synergies through Joint Ventures

WorkOrganisation/LabourRegulation

• tradition of modular (not brand or plant rel.) work organisation

• high internal labour flexibility• cooperative model of ‘conflictual partnership’

• employment relations based on familial‐traditional values

• ‘conflictual cooperation’ management‐works council

• extensive subcontracting



Why were the German Big Three quite successful?

Company structure and capital strategy driven by engineers/‘car‐guys’ (not by financial/accounting or sales managers), globalisation began early or at the right moment (sales CKD production).

Product structure and market strategy are focused on the premium quality in all segments from small cars to SUVs, offering (mainly Diesel) fuel effective engines. Models adapted to demands of the particular market

They capitalised on the emerging new middle and upper class and the new millionaires in the BRICS/South (China, Russia etc.).

Work organisation is based on professionalism, competences and commitment; labour regulation is based on very strong Works Councils, strong union IGM (in GER), high employment stability, high internal flexibility (job assignment, working hours).



40,16%

0,82%

‐4,12%

45,77%

‐2,41%

61,10%

‐22,29%

1,07%

43,45%

87,89%

‐40,00%

‐20,00%

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%North America South America Western Europe Eastern Europe Asia‐Pacific

Car Market Volkswagen

Development World Car Market vs. Volkswagen Group (Main Market Regions)(Car Deliveries to Customers, 4‐Year‐Development 2010‐2014)

Sources: Volkswagen AG 2011; Volkswagen AG 2015; own calculations.

2. Volkswagens great success 2010 to 2015


Source: China: The second home market of the Volkswagen Group. Carsten Isensee, Executive Vice President Finance, Volkswagen Group China, Beijing, 08 June 2015.



Chronology of the emission affair I• During 2000s: emission rules (e.g. Bin‐5 Lev II) are defined in USA, stronger than EU• Since 2005: Volkswagen, Audi, BMW and Mercedes‐Benz decide to enter the US‐market

with “clean Diesel”; according to internal revision, the decision to manipulate controlsoftware was taken in 2005 already in engine development center in Wolfsburg

• In 2007 the new engine EA 189 is presented as “cleanest Diesel of the world” (16 valves,exhaust gases recirculation, special cold start control); Bosch, the company that developedthe software for controlling the Diesel fuel injection, sent a letter to Volkswagen pointing topossibilities to manipulate the software: it can detect conditions of a test stand and thenincrease emission cleaning

• Since 2008 the Diesel engine EA 189 with manipulated software is assemblied in millions ofselected models of Volkswagen (New Beetle, Golf VI, Jetta, Passat VII, Polo, Scirocco,Tiguan), Audi (A1, A3, A4, A5, A6, Q3, Q5, TT), Skoda (Fabia, Roomster, Octavia, Superb) andSeat (Leon); already in 2008 the Carb agency claimed Volkswagen to explicitly declare thatno “defeat device” was installed in engine control

• 8 Mio. cars in EU affected, have to be checked and changed in car repair shop, eventuallyhigher taxes due to more CO2‐emissions, in total almost 11 Mio. cars worldwide

• Since 2013 with Modular Transverse Matrix MQB new engine EA 288 – without manipulatedsoftware

3. Crisis of September 2015 and its explanations


Chronology of the emission affair II• In spring 2014 the International Council on Clean Transportation (in USA and Germany) and

West Virginia University tested Volkswagen Jetta and Passat: oxides of nitrogen 5 to 35 timeshigher than the legal limit; BMW was almost ok

• In December 2014 Volkswagen declared to have found an error and updated software inalmost half Million cars in USA; since spring 2015 California Air Resources Board (CARB)began checking the updated cars under real conditions, no emission reduction was found

• In May 2015 Carb informed EPA and Volkswagen; US‐agencies refused to admit new 2016‐models of Volkswagen; until then Volkswagen admitted to have installed a “defeat device”that simply put off emission reduction under real conditions and puts it on only under testconditions

• 3 of Sept. 2015: Volkswagen admitted to Carb and EPA manipulations of software• 18 of Sept. 2015: Environmental Protection Agency (EPA) informs in Washington about

manipulated software – until then Volkswagen confessed publicly the manipulations• Volkswagen shares lose 12 billion Euro in one week; French, Spanish and other prosecutors

investigate against Volkswagen; 20 to 50 billion Euro have to be paid; some 100 billioninvestments were planned up to 2020

• Bosch‐CEO Volkmar Denner says if “emission norms are reduced in a non realistic way, thatis no favour, neither for clients nor for the industry”



1st thesisThere was a clear conspiracy of the Volkswagen consortium as a whole the Volkswagen group should be re‐booted from zero.

2nd thesis There was only a small group of engi‐

neers organizing the manipulation – top managers had no knowledge of that only some persons have to be changed,

the show can go on.

3rd thesis

The emission affair is the culmination of (1) engineering path dependency ofDiesel‐engine tradition and incremental innovation, (2) divergent externalexpectations and legitimation strategies impeding disruptive innovation, (3)specific organizational culture and tradition that frustrated disruptive innovationand (4) contingent action dynamics.

How to explain the emission affair?



4. The failure of disruptive/reflexive innovation

A sociological model of simple and reflexive transformation of societal reality in/by performance‐driven organisations

Pries, L.,1995: La reestructuración productiva como moderniza‐ción reflexiva. México: Universidad Autónoma Metropolitana


Christian Ketels (Harvard Business School): Innovation Infrastructure, Competitiveness, and Clusters: How to Translate Knowledge into Prosperity? http://www.wire2011.eu/presentation/list



Christian Ketels (Harvard Business School): Innovation Infrastructure, Competitiveness, and Clusters: How to Translate Knowledge into Prosperity? http://www.wire2011.eu/presentation/list

Unions?

EWCs?



3 dimensions of social innovation:“• Satisfaction of human needs that are not currently satisfied, either because ‘not yet’ or because ‘no longer’ perceived as important by either the market or the state (…) • Chances in social relations, especially with regard to governance, that enable the above satisfaction, but also increase the level of participation of all but especially deprived groups in society• increasing the socio‐political capability and access to resources needed to enhance rights to satisfaction of human needs and participation empowerment dimension" (Moulaert et al. 2005, p. 1976, cited in Howaldt, Jürgen/Schwarz, Michael, 2010: Social Innovation: Concepts, research fields and international trends, Dortmund: sfs, p. 24, download: http://www.sfs‐dortmund.de/v2/rubriken/publikationen/datenbanksuche/index.php?Id=1289t).

In the 21st century innovation processes are: • not linear processes but circular and network processes,• not organizationally or nationally limited but transnational,• shifting boundaries of production and consumption.



The emission affair as culmination of(1) engineering path dependency of Diesel‐engine tradition and incremental innovation,

a. product strategy of incremental innovation of Diesel engines and fuel efficiency basedon fossil fuel driven cars – not sustainable in times where disruptive innovation wasrequired

b. decades of lobbying in Germany and EU in favour of Diesel cars and focusing only onCO2 emissions, not on NOx emissions



Carbon Dioxide in air increased by 35% from 1750 to 2005

Rate of growth during last ten years biggest ever since 50 years

78% of growth due to using fossil combustibles

Forecasted earth warming between 1.8°C and 4.0°C

Raise of sea level until 2100 by 18–38 cm or until 26–59 cm

Source: Intergovernmental Panel on Climate Change (IPCC) 2007




UPI=Umwelt‐Prognose‐Institut:independentthink tank forecology andenvironmentin Heidelberg


The emission affair as culmination of(1) engineering path dependency of Diesel‐engine tradition and incremental innovation,(2) divergent external expectations and legitimation strategies impeding disruptive innovation,

a. no alternatives at hand directly: hybrid cars, battery quality etc. with restrictionsbecause of embeddedness in societal systems of mobility

b. expectations of clients and legitimation strategy of all German Big Three of “power andcomfort and ecology” (SUVs, more electronic, more weight) – not sustainable



project announcement in August 2009, testing in Salzgitter since beginning 2010

market introduction in 2011: 240 units sold, April 2012: 450 units sold in Northern parts of Germany and North Rhine‐Westphalia

goal: 100.000 units integrated in energy networks supplying in peak demands (capacity replaces 2 nuclear electric energy plants)

decentral combined heat and power station (BHKW):

Volkswagen 2.0 CNG‐EcoFuelengine fuelled with gas + sales by energy company LichtBlick

for schools, restaurants, apartment buildings etc.

producing heat and electric energy for customer and electric energy for sale to networks



The emission affair as culmination of(1) engineering path dependency of Diesel‐engine tradition and incremental innovation,(2) divergent external expectations and legitimation strategies impeding disruptive innovation,(3) specific organizational culture and tradition that frustrated disruptive innovation and

a) extremely hierarchized company structures (on both, capital and labour side)b) autism of a centralized company with headquarters in a rural area and monopolar

position in region and state of Lower Saxony

(4) contingent action dynamics.a. mixture of arrogance and fear dominated in engineering and managementb. very high pressure of being successful with “clean Diesel” in USA – too high promises



Thank you for your attention!

1. For the years to come there will be billions of losses for shareholders, employmentreduction and wage restraint for workers, skepticism or distrust of clients and stakeholders.

2. Volkswagen has the opportunity to shift from incremental to disruptive innovation and sendthe message: “we understood”.

3. Reflexive, disruptive and sustainable innovation has to be not primarily technical, but socialand societal innovation.

4. Relentless competition, huge complex organisations, highly centralized organizationalstructures and authoritarian fear‐based management style increase the probability of errorsand failure of improvement, for not speaking of innovation.

5. Reflexive innovation takes into account not only direct production processes andcompetitors, but society’s and stakeholders’ expectations as well as scientific forecasts andinventions.

6. Volkswagen as a consortium has better preconditions for going this way than mostcompetitors.

Conclusions

los límites de la innovación incremental auge y crisis...

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