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The Sedric concept is the first VW vehicle designed for level 5 autonomous driving(Photo: VW)

There is some irony here: The Volkswagen Group battled for years under an autocratic leadership to become the world’s biggest automaker and did not shy away from disreputable practices on the way. Its widespread cheating on diesel emissions, which came to light in 2015, is a case in point. Now it has met its growth target at a time when it is battling to overcome the greatest crisis in its history.

The VW Group delivered 10.3 million vehicles (up 3.8 percent compared to 2015) worldwide in 2016, pushing archrival Toyota from its throne. The “biggest automaker” label does not disguise the fact that the company has to reposition itself at its core. CEO Matthias Mueller recognizes this and has initiated a far-reaching overhaul of the company’s  core objectives. The plan is called “Together ”“ Strategy 2025” and it focuses heavily on electric mobility, digital networking and autonomous driving.

But implementing change at the northern German carmaker, which employs more than 600,000 people worldwide, has always been tough and today’s long list of new objectives underlines how difficult the transformation will be.

VW’s to-do list

Investment and development costs that have soared due to sometimes absurd specifications must be reduced to normal industry levels ”“ just as the pressures to innovate are growing rapidly. The group’s core brand identities should be sharpenedand modular platforms with their unmanageably wide variations should be tightened up.

The company also wants to make battery technology a core competency and develop solutions for autonomous driving and artificial intelligence. And then there is the group’s  platform technology, which seems designed for an automotive era that is coming to an end.

To get ready for the future, Mueller is building up an entirely new corporate brand to deal exclusively with mobility services. Its name: Moia. For starters, the focus is on ride-hailing and car-pooling projects. That’s why the company acquired a stake in the Israeli on-demand mobility company Gett. “Between now and 2020, we are implementing a comprehensive portfolio of digital services across all the group brands,” VW says.

And if that’s not enough homework for a company overrun with lawsuits and trying frantically to escape the headlines, it faces the crucial task of implementing an  “Organization 4.0,” which calls for radical changes in the way VW is run. “We can only make this huge effort together," Thomas Sedran, director of corporate strategy, said last year. “We’ve always had the tendency to pit the brands against one another internally.” There’s tension here because the brands are pressing for more independence in the wake of the diesel scandal and its collateral damage, according to industry sources.

Disruption in the IT ranks

As VW focuses more on new digital technologies, it is bringing in new people and functions that are not properly anchored in the organizational structure of the group. That creates more turmoil. VW Group IT has been flooded lately with CDOs and IT visionaries. The best example is chief digital officer Johann Jungwirth, who came from Apple and has been an evangelist, bravely painting vivid pictures of VW’s digital future.

The crux of the matter: “The line of separation in IT is not really visible to outsiders,” a top supplier said. The connecting lines are missing between the organizational boxes ”“ not a good thing if you want to use IT as a key lever to transform a massive company.

vw-ces-2017-controls-300x198 At CES in January, VW unveiled its 3D active info display (Photo: VW)

In fact, IT is challenged on two levels. Business IT has the task of efficiently supporting processes along the entire value creation chain and keeping legacy systems running smoothly. At the same time, it has to slash costs and faces cutbacks in the three-figure million range (out of a total budget of 5 billion euros).

In software development, it is essential to reduce dependence on external partners. The degree of outsourcing has been much too high at more than 90 percent. That is why the group is hiring 1,000 new IT specialists by 2020. The company has learned that everything takes too long and it is impossible to keep up if you continue to use external IT partners. "We will do everything ourselves that is relevant to the customer and the vehicle, and that is oriented to the future,” VW Group CIO Martin Hofmann said in an interview with automotiveIT. “It is quicker and less complicated than going through external bidding processes and lays down a basis for agile work.”

Among other things, the new IT experts are likely to jump-start the digital issues for which speed is critical to success. It is clear that the VW Group cannot subject itself to bimodal IT, as it is now practiced, for long. Otherwise, there will be friction, and it will have a deadly effect on the organization’s speed. Moia, for example, will only work if IT performs agilely and offers quick solutions. Its adversaries in the already hotly contested field of digital services are hard-hitting, generally well-financed and very aggressive. “Rivals such as Uber are on their way and tough to beat,” said Sedran.But even competitors from the automotive field such as Opel, BMW and Daimler have pulled away, having already established their digital services years ago.

An old ailment has continued to afflict the VW Group: It is sluggish and often responds too late to changes in the market. That is dangerous in the context of digitization. Artificial intelligence (AI) is one example. It is gaining far-reaching importance. Martin Hofmann knows this, which is why he is stepping up efforts in this area. The AI algorithms of tomorrow are being composed in a typical startup environment in the company’s still very new data lab in Munich.  "We are investing intensively in so-called ”˜bleeding edge technologies’...It is a matter of staying in the game, at the very minimum. If you fall behind, you’ve already lost,” Hofmann said.

Among other things, AI is a key component of Industry 4.0 and autonomous driving. At the digital lab in Berlin, which opened last year, experts are developing apps and platforms for customer relations 2.0 ”“ two technologies where VW must show its presence as soon as possible if it is to be successful with new-mobility ventures.

That is why VW proudly presented VW ID at this year’s CES exhibition in Las Vegas. It is an ecosystem in which vehicle users store their preferences and can apply profiles. Apple ID is the model. It’s a small stone in the mosaic of the corporate strategy whose outlines are only slowly becoming visible.

3 steps

vw-moia-300x200 VW launched its Moia mobility services brand at the Tech Crunch gathering in London in late 2016 (Photo: VW)

The VW Group would ultimately like to buttress the reorganization in three steps. It would start off with rebuilding the core business, including the development of new competencies. In the second phase, starting in 2020, the company wants to establish itself as the leading maker of electric vehicles. In the third step, which will likely begin in 2030, the company is aiming for the “leading role in the new world of automotive mobility.”

But its digital services are expected to bear their first fruit in just eight years: Over this period, the company would like to attract 80 million users to its platform, generating 1 billion euros in revenue ”“ an ambitious plan considering the conditions set forth here.

But that is not even crucial. The rebuilding can only succeed if there is a fundamental change at company headquarters in Wolfsburg. The company needs a culture of open discussion, flatter hierarchies and greater work flexibility. What’s needed is a new leadership model with clear feedback loops and top executives who actively want their subordinates to voice criticism when they see a need to do so.

There’s reason to believe that every member of the VW member board endorses this kind of change but doubts arise again and again. The resignation of Christine Hohmann-Dennhardt, the board member responsible for corporate integrity and legal issues, after not even one year, fuels the suspicion that powerful forces are at work in the background to keep cultural change from occurring. In any case, her departure and a recent discussion about executive pay do not reflect well on the transformation.

By Ralf Bretting and Hilmar Dunker

(This story was first published in automotiveIT International magazine. For a complimentary subscription, please go to: www.automotiveIT.com/subscribe)