My presentation at Darwin Club: Evolutionary Theory in Strategic Management

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Adam Grant on the Four Deadly Sins of Culture

He says:

People often claim their cultures are unique. But when you study thousands of organizations, you can start to see underlying patterns.

It all has to do with how we balance key priorities. Research reveals that there are two fundamental tensions in organizational culture: Results vs. relationships and rules vs. risk. If you ignore one of these values altogether, you end up committing one of my 4 deadly sins of organizational culture: toxicity, mediocracy, bureaucracy, and anarchy.

The first sin of culture is Toxicity. It’s the deadliest sin of them all. New evidence on the Great Resignation shows that toxic culture is the biggest driver of turnover–more than burnout, more than low pay. Toxicity exists when a culture prioritizes results without relationships. Getting things done at the cost of treating people right. The organization tolerates disrespect, abuse, exclusion, unethical decisions, and selfish cutthroat actions. If people don’t get fired for those behaviors– or worse yet, still get promoted– Houston, we have a problem.

At the opposite end of the spectrum is a second sin: mediocracy. Valuing relationships above results. There’s no accountability. People are so worried about getting along that they end up forfeiting good work. In mediocracy, even if you do a terrible job, you can still get ahead as long as people like you. Before long you end up with the Peter Principle, where everyone is promoted to their level of incompetence, and they get stuck there.

The third sin is… Bureaucracy. That happens when a culture is all rules, no risks. New ideas are seen as threats to the status quo. People cling to process and resist creativity and change. They see questioning the way we’ve always done things as blasphemy! There’s red tape everywhere, and if you want to use the bathroom, you have to fill out paperwork.

And our fourth sin is Anarchy. You have risks but no rules. Anyone can do whatever they want, strategy and structure be damned. No one learns from the past or lands on the same page. It’s pure chaos. It’s bad enough when a culture commits one of these sins, but believe it or not, Maria’s jewelry company managed to be guilty of all four sins.

Source: Worklife Podcast

Purpose and the Employee

Economist reports on research on what motivates employees.

The story identifies six different archetypes, far too few to reflect the complexity of individuals but a lot better than a single lump of employees. “Pioneers” are the people on a mission to change the world; “artisans” are interested in mastering a specific skill; “operators” derive a sense of meaning from life outside work; “strivers” are more focused on pay and status; “givers” want to do work that directly improves the lives of others; and “explorers” seek out new experiences.
These archetypes are unevenly distributed across different industries and roles. Pioneers in particular are more likely to cluster in management roles. The Bain survey finds that 25% of American executives match this archetype, but only 9% of the overall us sample does so.

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How Philco-Ford imagined in 1967 what daily life would be like in 1999

According to Wikipedia, Ford owned Philco for 10 years starting in 1961. Hence the name Philco-Ford.  The brand is now owned by Philipps. 

A Fly on the Wall in a Fearless Organization

JPM: Amy Edmondson has written a very thoughtful short overview of what an organization that creates psychological safety for its employees without sacrificing performance looks like. I highly recommend the piece.

What does psychological safety sound like?

The trickiest part of organizational change is translating the big idea into the little interactions that happen hundreds or even thousands of times a day. What are team members actually saying to one another in situations both small and large, both ordinary and earth-shattering?

If you follow the current thinking on leadership and management, you have seen the concept of psychological safety cropping up with greater and greater frequency. Psychological safety describes an atmosphere where team members feel they can speak up with concerns, bad news, or ideas without fear of being shut down, blamed, or humiliated.

I call these cultures fearless organizations. In a fearless organization, people are all in. They don’t let concerns about what others might think cripple them. I’ve spent 20-plus years studying how psychologically safe workplaces unleash creativity, innovation, and learning, and have documented it all in my latest book, The Fearless Organization.

Where it gets complicated is bringing this into the everyday life of the team. First, my standard caveat: Psychological safety is often confused with a “safe space,” when it’s actually nearly the opposite.

A psychologically safe culture is not free of conflict, consequences, or accountability. These things exist but are managed positively and constructively. It does not mean employees are “wrapped in cotton wool,” as my friend and London Business School professor Dan Cable has said. Think of psychological safety as an atmosphere of healthy give-and-take, rather than an atmosphere of tiptoeing around.

So, in a psychologically safe environment, what’s actually being said in the room? I’ve divided the list below into “team leader” and “team member,” mainly for emphasis. But in actuality, anyone anywhere in the hierarchy can permit, build, or claim psychological safety. Team leader

• This is totally new territory for us, so I’m going to need everyone’s input.
• There are many unknowns/things are changing fast/this is complex stuff. So we will make mistakes.
• Okay, that’s one side. Let’s hear some dissent/who’s got something to add/let’s have some give-and-take.
• Lucy, you look concerned. Gilles, you haven’t said much. Adrian, what are you hearing in the warehouse/on the phones/on the road?
• What assumptions are we making? What else could this be/could we investigate/have we left out?
• What are you up against? What help do you need? What’s in your way?
• Did everything go as smoothly as you would have liked? What were the friction points? Are there systems we should retool?
• If you’ve got something to add, just… (mention a few channels of communication, including ones suitable for difficult conversations).
• Thank you for that clear line of sight. (This was the famous reaction of Ford’s Alan Mullaly to some colossally bad news.)
• I really appreciate your bringing this to me. I’m sure it wasn’t easy.

Team member:

• We’ve got some new information we’d like to share.
• Something’s been troubling me. Do you have ten minutes to talk about it?
• Some of this is not good news. Is this an okay time to dig in?
• I mentioned the problem to the team and we’ve got some ideas.
• I’ve hit a roadblock/I’ve got to go back to square one/I’ve made a mistake.
• We tried an experiment, and it didn’t go as expected.
• The front desk says patients aren’t comfortable with this new procedure.
• There’s been an uptick in X, and we can’t explain it just yet.
• I’m not sure who to approach about this kind of thing/the level of detail you like to hear/what’s the best procedure for bringing up a concern.
• Let me recheck that for you. It doesn’t sound right. It’ll only take a minute.
• We need another pair of eyes on this. Best to spend a minute/hour/day/week on that now.
• I don’t feel right about this. Can we do a hard stop right here?
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As you can see, these are perfectly normal, everyday phrases. And that is exactly my point. None of this is technical knowledge or deep expertise; it’s more like cultivating a habit of mind and re-orienting one’s thinking. All of it is quite simple—and yet, not easy.

A few themes emerge from these snippets. Team leaders and members, wherever they are in the hierarchy, must continuously do three things:

1. Frame the challenge. This creates room for questions and concerns, but also for creativity. What you’re really doing is giving permission to experiment, possibly mess up in myriad small ways, and thus to learn. After all, we live in a VUCA world (a military term for variable, uncertain, complex, and ambiguous). There’s always a challenge to frame.
2. Invite participation. Make it 100 percent clear that all voices are welcome. Be continuously on the lookout for the unspoken concern or idea. It remains a stubborn fact that we don’t know what we don’t know. I’ve seen companies do creative things like developing their own insider-speak, almost a set of cues for speaking up. These can be anything—a catchphrase, a line from a movie. And depending on the context, they can be odd or goofy or profound.
3. Respond appropriately. Make speaking up a positive experience, even when you don’t like what you’ve heard. This is incredibly hard sometimes, but absolutely necessary. When you get bad news, you might be angry or disappointed. You may be worried about the project or how the news reflects on you. But in the moment, you must put all that to the side. Thank the messenger enthusiastically, sincerely, and publicly, if appropriate. Then move forward constructively.

These three things must be done in as many ways—and at as many junctures—as it takes.

Here’s a way to think about creating psychological safety. It comes from a different context, but it works. There’s a very gifted designer of educational products, David Dockterman, who has taught a popular course at the Harvard School of Education. One of his maxims: Think of the classroom where kids are doing your activity. Think of what you want them to be saying to each other. Work backward from there.

It’s in that spirit that I offer up the list above. It only scratches the surface, and context is everything. But I do I hope these snippets might help you work backward to a culture of speaking up and forward to a fearless organization.

Source: Psychology Today

Peter Hessler:  “How China Controlled the Coronavirus”

The China expert Peter Hessler has written an informative letter on How China Controlled the Coronavirus drawing on his experience on teaching a class on non-fiction writing in Sichuan during the pandemic. Read Article. You can listen to a podcast of the article as well.

Striking Similarities to Spanish Flue outbreak in 1918

We have heard about the similarities of COVID-19 to the Spanish flue, but here is it told well in a short video.

VW CEO uses history to explain why VW needs to speed up change to avoid the fate of Nokia

This is a Deepl AI translation of the speech of VW CEO to employees in January 2029. The complete speech of the VW boss in the wording:

“Ladies and gentlemen,

the world is on the move. Politically and technologically, we live in an incredibly dynamic time. A turn of an era stands before us - from the dimension of the industrial revolution. And Volkswagen is in the midst of the storm of the two greatest transformation processes:

- Climate change and the associated pressure to innovate towards emission-free driving.

- And digitalisation, which is fundamentally changing the automobile as a product.

Our Group is not always in the best position to react quickly and systematically enough to these developments. Measured against this, we have not done badly so far. This is also acknowledged by market observers. In 2019 in particular, analysts have gained new confidence in our strategy.

At the beginning of this year, Kepler Cheuvreux attested: “We think VW is the best positioned player in the industry to master the CO2 challenge. And Goldman Sachs says: “We expect VW Group to continue to prosper this year as a result of ongoing positive sales developments at VW brand, a pick-up in sales at Audi, and broadly flat margins.

In the Litigation area, we are making the risks from the diesel crisis more manageable step by step. In terms of corporate culture, we are seeing tangible and measurable progress. I am pleased that we have increased our integrity by three points in the sentiment barometer.

Our modern MQB-based model range in terms of volume and the new Porsches, Audis, Lamborghinis and Bentleys are convincing customers. We are improving the quality of our business. Revenue and earnings are growing faster than unit sales. In China, we increased our market share by 1.4 percent in a sharply declining market. This is a great achievement, which hardly anyone would have expected from us. Congratulations to Stephan Wöllenstein and his team on their outstanding performance!

In South America we are back in the black for the first time, and we have also turned our business around in Russia. In North America, we have significantly improved our earnings and are aiming to break even this year. Volkswagen Financial Services will have a record year in 2019, and the component has taken decisive steps in battery development and production.

At Audi, the e-tron got off to a successful start, development costs were reduced and a comprehensive cost reduction programme was launched. Porsche has once again delivered excellent figures and cars and set an example with the Taycan. Seat conquers new and young customers with Cupra. Skoda is running at full speed and will present the new models in India, an important future market for us, at the beginning of February.

VW Commercial Vehicles has put the extremely important Ford cooperation on track, and Traton has completed its IPO. We are seeing positive trends at Bentley, Ducati, Bugatti and Lamborghini, and Bentley in particular is back in the black. The Volkswagen core brand has worked hard to further increase returns. All in all: good developments.

“The storm is just beginning”

But honesty also means that the storm is just beginning. And today is an opportunity to examine ourselves and each other: Are we well enough prepared for what’s coming? 2020 will show how weatherproof, agile and responsive we have become.

Last week I visited investors and analysts in New York and promoted our strategy there. I explained the steps we are taking for 2020 and 2021. In comparison, we are receiving more and more buy recommendations for our shares. 88 percent recommend buying VW shares. We are gaining credibility. That is of enormous importance for us.

But: The development of Tesla’s share price has recently been far more dynamic than the increase in VW’s share price. In terms of market capitalization, Tesla is now almost level. Ladies and gentlemen, we are valued like an automotive company, Tesla like a tech company.

In the future, the automobile will be the most complex, most valuable Internet device suitable for the masses. We will spend more time in the automobile of the future than today, perhaps two hours instead of one. That’s why it won’t be a grey box, but will be much more comfortable, homely and above all more networked and multifunctional than today. In the car, we will be continuously online, delivering far more data than smartphones, but also getting more information, services, security and convenience from the Internet.

The networked car will almost double Internet time. The car will become the most important “mobile device”. When we see this, we understand why Tesla is so valuable from an analyst’s perspective. We at Volkswagen want to get there, too. The big question is: Are we fast enough? The honest answer is: maybe, but things are becoming increasingly critical. If we continue at our current pace, things will actually get very tight.

I remember a situation in which I had Nokia employees - I had taken over a few hundred - explain to me how they went down in the fight against Apple. The logic was: “We have 43 different mobile phones, the right one for everyone, nobody wants touch, you have to charge the iPhone at least once a day, while our battery lasts for a week”. And: Nokia had record years, but was practically already dead.

Steve Jobs, on the other hand, had understood that the function of the device was changing fundamentally. Internet access became more important than the phone itself. And loading time was no longer so crucial for customers. A few years later, Nokia was history.

“We’re going to need an extra catch-up program”

Ladies and gentlemen, this is precisely the situation that is being repeated in the automotive industry. The car is no longer just a means of transport. And that also means that the era of classic car manufacturers is over. The future of Volkswagen lies in the digital tech group - and only there. And we will need an additional catch-up program to mobilize all the potential in the Group for this.

We have what we need. There is a great deal of technical know-how within our Group. We have a top management team, as the Future Executive Development Program has shown us. And we can use the proceeds of today’s technology to finance the transformation from our cash flow.

What we lack above all is speed and the courage to take a radical change of course, if necessary. Ladies and gentlemen, that is what it is all about: powerful change. Otherwise it could soon be too late. 2020 is now just around the corner. Three points are crucial:

Firstly, meeting the new CO2 limits by making our e-strategy a success and getting ID.3 on the road. 2020 is the year of truth for CO2 compliance. With a difference of 30 grams to the limit value, which we will have to close in two years and which can only be closed with e-vehicles and plug-ins.

UBS analysts put it bluntly in early January: “We reiterate our view that the ID3 is VW’s ‘must-get-right’ vehicle in 2020, as it spearheads VW’s second-to-none EV offensive. So, the ID3 is key to CO2 compliance for VW in the EU. The ID.3 has to go on the street. To do this, we must meet the challenges at the start. The challenge is the complexity of the software and electronics.

In addition, we also have to supply, build and deliver batteries to Seat Mii, VW Up!, e-Golf, e-tron and Taycan in order to comply with the limit values. All in all, this is perhaps the most difficult task that Volkswagen has ever had to face.

Second: Implementing the e-strategy without losing profitability. Margins in 2020 must at least be sustainable. We have the potential to do so if we really take the seriousness of the situation as an opportunity to fully exploit the potential of this Group and, where necessary, slaughter sacred cows.

We will use the synergies within the Group much more consistently and must reduce complexity even more. To this end, we are forming the synergy families. The idea of using the greatest possible synergies in model development between the brands is not new.

Exploiting the strengths of the Group also means: we need maximum profit pool utilization across all segments. To this end, we have agreed the brand territories.

It is completely understandable that some brands would pursue a different strategy if they were alone. But we operate as a group. Each brand is measured by the fact that it fully exploits its own territory. The corporate goal is above the brand goals. Just as important: with the six percent for research and development and for investments, it must be clear: That is the maximum ceiling. Toyota - not to be compared with us in all consistency - runs at three to four percent in these disciplines - and is considered innovative and environmentally friendly.

We must make further progress in productivity. Cost-cutting programs are underway in all brands. The German locations in particular offer potential here. And they also have a lot of leverage. Reducing complexity also means regularly reviewing our activities and asking ourselves: what can be eliminated, what do we need new?

To name a few examples: We are bringing the fuel cell and liquid fuels down to basic levels. For a foreseeable time horizon of at least a decade, they are not an alternative to car engines. We need to concentrate fully on the breakthrough of electric mobility.

We will also significantly reduce expenses at Moia. We want to keep our foot in the business. But we have to extend our commitment over time until the conditions for profitability are better. This applies not least to the expensive vehicles.

“Moving away from volume and towards quality”

In addition, the portfolio is being restructured with a clear focus on the core business. The IPO of Traton was an important step. A first step. We are actively engaged in discussions on industrial solutions for Renk and MAN Energie Solutions.
In order to achieve and sustainably increase our target margins, we also need a fundamental rethink. Away from volume orientation, and toward earnings quality.

Take Bentley as an example: 10,000 deliveries - that is a strong performance by the team, which we did not think possible just a short time ago. Congratulations and thanks to the team. But the news would of course be even more impressive if we were to achieve a return greater than zero. If I’m completely honest: I’d rather have 5,000 deliveries and a return above 20%.

Conversely, Mexico. Here, the market share has fallen slightly in 2019 - caused by the pricing and shutdown of low-yield vehicles. But the company’s earnings have improved from a clearly negative contribution to just below break-even. This is expressly an excellent development! We must succeed in the paradigm shift away from volume and towards quality of business. In the future, we will focus even more strongly on sales, return on sales and cash as core reporting figures.

Thirdly: Making Car.Software.org a success and generating impact. The Car.Software.org is launched. Now it must become operational. This also means that we must not wait until all organizational issues have been clarified down to the last detail, but must get started. We all have a clear demand: The success of the Car.Software.org will decide our future!

These are the building blocks for achieving the 200 billion euros in enterprise value. The program for this is the “Together 2025+” strategy, which we agreed on last year in Fleesensee, with the five modules Best Governance, Best Performance, Best Brand Equity, Software Enabled Company and Excellent Leadership. These five modules describe the right direction for the transformation towards a Tech Group.

Turning Volkswagen from an automotive group into a digital Tech Group - that is a gigantic challenge. It sounds unlikely that it can be mastered. Nevertheless, I believe that we can master it. To do so, we need a radical restructuring of the Group. We need to make use of our strengths, but we also need to leave out and abandon everything superfluous that is not going to get us anywhere.

That is the task of us all. In these challenging times, we need to think in new ways and bundle our strengths. And, of course, it is still a matter of making Volkswagen a company of sustainable integrity. We have it in our own hands. 2020 is the year of opportunities for faster, more consistent restructuring.

Before Christmas, I congratulated the best apprentices from the entire Group in Wolfsburg. I said to them: This company is their company. And if this company is not to become an industrial monument, then they must put aside the monuments of everyday life. I said that to our trainees. And I say the same to you.

We need a common understanding of the radical nature of change. In the magnitude of our task. And in the short time available. It gives us exactly one single attempt to secure Volkswagen for the future. Let’s use it.”

But honesty also means that the storm is just beginning. And today is an opportunity to examine ourselves and each other: Are we well enough prepared for what’s coming? 2020 will show how weatherproof, agile and responsive we have become.

Last week I visited investors and analysts in New York and promoted our strategy there. I explained the steps we are taking for 2020 and 2021. In comparison, we are receiving more and more buy recommendations for our shares. 88 percent recommend buying VW shares. We are gaining credibility. That is of enormous importance for us.

But: The development of Tesla’s share price has recently been far more dynamic than the increase in VW’s share price. In terms of market capitalization, Tesla is now almost level. Ladies and gentlemen, we are valued like an automotive company, Tesla like a tech company.

In the future, the automobile will be the most complex, most valuable Internet device suitable for the masses. We will spend more time in the automobile of the future than today, perhaps two hours instead of one. That’s why it won’t be a grey box, but will be much more comfortable, homely and above all more networked and multifunctional than today. In the car, we will be continuously online, delivering far more data than smartphones, but also getting more information, services, security and convenience from the Internet.

The networked car will almost double Internet time. The car will become the most important “mobile device”. When we see this, we understand why Tesla is so valuable from an analyst’s perspective. We at Volkswagen want to get there, too. The big question is: Are we fast enough? The honest answer is: maybe, but things are becoming increasingly critical. If we continue at our current pace, things will actually get very tight.

Translated with www.DeepL.com/Translator (free version)

Source: Handelsblatt

Framework and Toolkit for Improving Peripheral Strategic Vision

Day and Shoemaker have developed a useful framework and toolkit for assessing how much peripheral strategic vision your company needs.

An MIT Sloan article lays out the ideas in three steps.

More details on the toolkit are in their HBR article that can be assessed here.

On Strategic management, leadership & the success of Huawei

I did a four-minute interview with the HSG Focus Magazine.