Volkswagen Fires Tech C-Suite After 3 Avoidable Digital Strategy Errors
After its $35 billion diesel emissions scandal, Volkswagen bet heavily on in-house software development and tech innovation. So far, that gamble has failed mightily — with significant product delays and career casualties.
In 2020, VW launched CARIAD, a division tasked with building an “unified software architecture” for all company brands including Porsche and Audi. In addition to production efficiencies, VW envisioned new lucrative revenue streams from tech licensing fees and subscriptions. However, poor execution and cash drain plagued CARIAD, delayed electric vehicle releases and stalled autonomous driving initiatives.
As VW faltered, established and upstart rivals raced ahead with well-funded innovation, modernized plants, scaled automation, deep tech-sector partnerships and energized brand building. That swift competitive decline led to VW Group CEO Herbert Deiss’ dismissal last September. New CEO Oliver Blume prioritized fixing the costly tech problems. Last month, he replaced most of CARIAD’s board and c-suite including its CEO Dirk Hiligenberg, CFO Thomas Sedran and CTO Lynn Longo.
The broad leadership changes made news, but what’s more noteworthy is that their three major unforced digital strategy errors are hardly unique to VW or automakers.
Backfired
Volkswagen put itself in a vulnerable position. As technology redefines industries, the scale of global businesses only amplifies risk. Small digital era missteps can quickly escalate into huge disadvantages. Here are three c-suite certainties that stealthily derail and diminish strategic edge when missed.
1. Enough already! Only tech companies are truly tech companies — everyone else uses technology to advance business aims.
CARIAD eschewed partnerships with tech giants such as Apple, Google and Microsoft, opting for in-house development. Despite employing nearly 6,000 engineers, the subsidiary failed to meet key timeline and performance goals. For instance, VW delayed its new operating system adoption until 2024 and premium electric vehicle launches by Porsche and Audi are delayed until at least 2026.
Those revenue and margin postponements are not lost on investors. Analysts at Bernstein emphasized, “The CARIAD delay is serious and negative for Volkswagen. We will be interested to see if new CEO Blume will manage to accelerate the tech delivery.” He’s started by changing course and exploring tech partnerships.
Given the pace of change, global talent battles and high strategic stakes, boards and c-suites can’t underestimate the profound risks of complex tech “make or buy” decisions. Those choices must be practically and humbly grounded in accepting and understanding the inherent limitations, depth and scope of in-house tech expertise. The overly-simplistic binary choice of in-house and outsourced IT is antiquated, illogical and problematic. Firms need tech workforces that leverage, complement and deploy, rather than attempt to supersede, market innovations and advancements.
2. Due diligence does not end with investment.
Business headlines are flooded daily with company announcements trumpeting massive tech project funding. However, effective boards and c-suites need to apply the same level of scrutiny to post-investment due diligence as business case screening often receives. Inattention is often the root of project frustration and cash burn.
In CARIAD’s case, the subsidiary established for strategic advantage quickly became a “dumping ground” for adrift IT projects. Just last year, Hilgenberg acknowledged longstanding woes of accepting existing tech baggage. “When I came here, some people greeted me with the words ‘welcome to the bad bank.’ I wouldn't put it that way, but it's clear that some unresolved issues were thrown into Cariad and should be cleaned up.” It’s leadership negligence to allow such distraction to exist and persist.
Nothing is more corrosive to workplace morale, profitability or productivity than rework. For VW, such passivity and weak governance translated into strategic priority neglect. Conversely, bold leadership, especially in service functions, tenaciously oversees scarce resource consumption, time utilization and productivity attainment.
That requires senior leaders with a very different skillset than traditional project management administration. VW hopes that CARIAD’s new CEO Peter Bosch, with Bentley Motors board and Oliver Wyman consultant experience, can turn around its tech subsidiary. In a statement, Blume characterized him “a strategist, an enabler and a team player. He successfully proved that at Bentley. He knows the Volkswagen Group well and also has extensive experience in the fields of change and consulting.”
Time will tell. CARIAD’s strategic success is contingent on taking tough, meaningful action with great clarity, real accountability and, most importantly, lasting results.
3. “Call the consultants” is not the strategy audit approach companies need.
Senior leaders often view audits as compliance, operational or financial exercises. Strategy audits are far less common — or comfortable. Only adaptive organizations welcome insiders to question, critique and challenge strategic purpose and progress. Too often, such challengers are ostracized, punished, labeled “bad actors” or cast out. Instead, their critical perspective should be welcomed — before it’s too late.
“Too late” was exactly the timing of Diess’ call to McKinsey during the third year of CARIAD’s struggles. Summarized by The Stack, the consultants’ “report was apparently scathing, estimating the costs of CARIAD would amount to around €3.5 billion by 2026, and up to €9 billion by 2039 — with losses for Porsche estimated at €2.5 billion because of delays to new model launches.” Ironically, senior leadership changes including the end of Diess’ CEO tenure soon followed.
Organizations can avoid such upheaval with ongoing credible monitoring, assessment and re-calibration of digital strategy and emerging technology adoption. All require insight, candor and courage that start with asking (and answering) the routine due diligence questions merger partners or acquirers would require. That’s quite rare.
Crossroads
Volkswagen’s future hinges on closing rivals’ significant leads in emerging vehicle technology. Such success requires substantive leadership that can deliver innovation and growth without abandoning stewardship. Otherwise, the three common and avoidable digital strategy mistakes will inevitably repeat at VW — and under the watch of “leaders-in-title-only” anywhere. Who’s leading, not chasing?
