Volkswagen and Weber

A huge scandal has erupted in the United States – but with global consequences – about the German car company Volkswagen. In brief, it has been revealed that VW installed software so that their diesel cars would meet emission targets when being tested, but when in actual use emissions were way greater than permitted.

We don’t yet know the full details of how and why this happened but, for sure, it is an organizational story, and one which well-illustrates some of the core arguments in my book. In particular, I make a lot of use of the distinction, derived from Max Weber’s work, of formal and substantive rationality (introduced pp. 21-25) and the various ways that this sets up conflicts and contradictions in organizations, including goal displacement (where following a formal regulation becomes an end in itself, forgetting the substantive purpose of the regulation).

I go on to say that these “are not anomalies and anyone who works in an organization or reads the news will know how pervasive they are” (p.30), and give a couple of examples. One was from education, and the way that faced with a target designed to raise educational attainment teachers focus on that target to the detriment of educational attainment. Another was from healthcare, with rules about waiting times designed to improve healthcare being followed blindly so that all that matters is meeting the formal target, to the detriment of substantive healthcare. The VW case provides a further illustration of this. The organizational response to a formal rule designed to achieve the substantive goal of protecting the environment by controlling emissions was … to follow the formal rule without regard for the substantive purpose.

The VW scandal also illustrates an aspect of another of the main themes of the book, again derived from Weber, about the inefficiencies of efficiency. Presumably, some person or people in VW decided that the best way to sell cars in the US market was to cheat on the tests. And, indeed, VW enjoyed very successful US sales. But the unintended consequence of this decision has been to wreak massive damage on the company, its brand image and very likely its future sales and profitability, as well as potentially crippling legal actions. Where’s the efficiency in that? My guess – it’s only a guess – is that as with the Enron scandal the decision will have been made by ‘the smartest guys in the room’ – so smart that they are stupid.

So I think that this case once again shows the enduring relevance and explanatory power of the concepts of formal and substantive rationality, goal displacement, bureaucratic dysfunctionalism and so on. This in turn means that the likely proposed solutions – smarter regulations on emission testing, more stringent internal procedures within VW and perhaps other car firms – are unlikely to have much traction: they will just provoke further goal displacements, new rules to blindly work to. Not until emission minimization – in this case – forms as much of the taken for granted for engineers and their managers as any other principle of engineering, rather than being seen as something external and alien to those principles, is anything really likely to change. The same analysis could be applied to huge numbers of other cases: prudential banking regulation being an obvious example.

Finally, although this blog is connected to the ‘very short etc’ book, I will shamelessly plug my next book (Jana Costas & Christopher Grey, Secrecy at Work. The Hidden Architecture of Organizational Life. Stanford University Press, to be published March 2016). Because from what is known so far it does seem likely that the decision to rig the tests was kept secret from VW’s senior managers by those who took it. How and why such a thing might happen is explained by …. well, read the book to find out!