Management

Deception: A German Tradition (Part 1)

Back in the 1930s, cars were relatively rare in in Germany while in the United States, Henry Ford built cars cheaply that everybody could afford. There were far more middle class people in the U.S. who had automobiles than in Germany, and that bothered the Nazis because they were supposed to be superior. Therefore, Hitler hooked up with Ferdinand Porsche and his idea of a people’s car. Porsche went to Ford on several occasions and brought workers to Germany in order to build the Volkswagen factory. It was consciously modeled on Ford, but the Nazis wanted it to be the biggest factory in the world – which it eventually became after the war.

‘I am pleased that, at the skilled hands of a brilliant design engineer and his staff, preliminary designs for a German Volkswagen have been completed, and the first models will finally be tested by the middle of the year.’

Wolfsburg as a city did not exist at the time. Everything visible in Wolfsburg today is grown up around the original factory. Although VW’s acquired brands like Audi, Seat, and Skoda are successful in Europe, Volkswagens’s road to global dominance has always led through America.
In the 60s, sales hit new highs when the VW Beetle populated American streets in its thousands. The unique and unconventional design of the Beetle perfectly matched the new revolution and ensured that peace, love and freedom found their way to even the remotest corners of the USA. The car designed for Hitler became a symbol of the counter culture. But VW did not innovate and keep up with time. As the counter culture gave way to the Reagan era, VW sales dropped as fast as the quality of its cars and led the manufacturer to the brink of bankruptcy. The rescuer of VW appeared in the former head of Audi, Ferdinand Piëch, a grandson of Ferdinand Porsche. Personally and professionally very productive and ambitious, the brilliant and dangerous man infused VW with a new culture of aspiration and success.

Piëch came just in time to turn the company around and introduced a strategic large-scale thinking. He had the idea of producing small Diesel engines. TDI® – a diesel that was fun to drive, powerful and clean. It was a huge success in Europe. However, the exhaust was not really clean. Nitrogen oxide (NOx) causes air pollution and damage to health. The infamous NOx filled smog in southern Califormia and major cities in the US in the 70s was not only damaging to plants, it caused asthma, cardiac problems, cancer, and premature death. Therefore the much more strict NOx standards in the US than in Europe. To keep efficiency on Diesel but to cut down on NOx, manufacturers like VW tried to create “NOx traps” that caught and burnt the stuff before it left the tail pot. But the special parts needed were expensive and had to be replaced every few thousand miles. Yet they were the only way to meet the NOx standard set in the US. Solving that problem was critical for the “Strategy 2018” set by Martin Winterkorn and Ferdinand Piëch: VW’s big game for world domination. They wanted Diesel cars for the United States (at the time the world’s largest market), but everyone knew this was incredibly hard to achieve. Pressure on workforce to succeed and increase sales became unbearable. On its mission to become the biggest automobile manufacturer in the world, Volkswagen created Diesel cars that could cheat emissions tests while pumping 40 times more NOx into the air than they claimed to. With the opening of a new plant in Chattanooga, Tennessee, the CEO boasted about his new found corporate responsibility.

VW’s “solution” to the Diesel problem caught the attention of a group focused on clean transportation. They studied VW Diesels – not to see if they were bad, but why they were so good and whether they could serve as a model for the US. It was also unclear why they came out clean in the US and not in Europe, so there was a missing piece of data. But what they found in 2013 did not add up.

‘The International Council on Clean Transportation (ICCT) provided the results of its measured “off cycle emissions” and its (comparison) values detected in parallel in the FTP test to VW Group of America (VWGoA) EEO and requested comments on the high exceedances. In a conference call, the California Air Resources Board (CARB) authority also announced further investigations; specific questions of the authority with respect to the regeneration strategy of the NOx storage catalyst and the UREA dosing strategy in the SCR system in the Volkswagen R4 TDI vehicles have already been received by the EEO.
A thorough explanation for the dramatic increase in NOx emissions cannot be given to the authorities. It can be assumed that the authorities will then investigate the VW systems to determine whether Volkswagen implemented a test detection system in the engine control unit software (so-called defeat device) and, in the event a “treadmill test” is detected, a regeneration or dosing strategy is implemented that differs from real driving conditions.’
(VW Quality Manager Frank Tuch in an email to CEO Martin Winterkorn)

VW’s only answer was to stall for time. Following 16 months of investigation and the revelation that Volkswagen had embedded defeat devices in its software calibrations for all of its 2009–2014 Diesels in Europe and 2009–2015 Diesels in the US, regulatory agencies have taken various measures to force VW to remedy the problems. However, VW did not fix the problems – in contrary, they fixed the defeat device to make it even better at cheating. With VW’s announcement in the United States of a recall and a “fix” for various Volkswagen Group models, regulators have defined required emission system modifications for almost all VW Diesel engines in the US market.

Winterkorn denied any knowledge of a defeat device, but he was forced to resign the day after giving this statement. Nobody believed the fairy-tale brought up by Michael Horn and Martin Winterkorn that a small group of engineers at VW did something on their own. The state of New York launched a civil suit proclaiming fraud by VW. Along with various sanctions, VW was forced to pay over 25 billion in fines and to buy back over 550’000 vehicles from angry owners. The data continues to support earlier findings that enforcement in the United States is far more effective and stringent than in Europe. The German government enables cheating by regulation, allowing calibration strategies implemented through defeat devices. This is called “protection of the engine”. The German government cares more about protection of the engines than protection of human beings. Additionally, the German government has a stake in the partially state owned car industry. Should they harm their national car industry? It means jobs and taxes, after all. To this day, VW and the other German brands are selling dirty cars throughout Europe and the world. In order to fight back and show “the benefits of clean Diesel cars”, the German car companies and particularly VW embarked in a plan to do their own tests on monkeys and humans. They established a phony research company called EUGT to study the effects of Diesel exhaust. EUGT paid a company called Lovelace Respiratory Research Institute (LRRI) to conduct a study in order to show that the “new” Diesel technology was environmentally friendly. It involved research monkeys and inhale pipes.

A couple of days after the news broke of the monkey experiments in the US, a report in the Stuttgarter Zeitung accused the big three carmakers of also conducting emissions tests on humans.

Gas – a German tradition.

We’ll be Run by Morons Pretty Soon!

“You look at the active value of the companies that you buy the stocks in. And it becomes a little more complex, but basically you look for a company that is cheap and the reason that they’re really cheap. And the major reason is often and usually very poor management.”

“So in a sense, it’s like an arbitrage. You go in, you buy a lot of stock in the company, and you then try to make changes at the company. […] We’re trying to get them to change the structure of the company. We think the board is very poor, and we’re trying to change what happens. The thing about corporate America is that most people in America don’t realize how poorly most of our companies are run in this country. With many exceptions. And when you get inside the companies, you realize it. The real reason is, there’s no accountability, there’s no corporate democracy. And I’ve been saying that, proselytizing it, writing about it. And the reason that we can make so much money when we go into one of these companies is – I’m not even a manager. I never took a course in management and I wouldn’t profess to really know much – but I don’t micromanage. I put in a very good manager. They cut the heck out of cost, but they changed the structure of the companies. And this is the problem in America today, in my opinion:
That we are basically under-managed. We can’t compete, because the best and the brightest don’t get to be at the top of the corporate ladder. And I, I have a sort of a metaphor that’s a little facetious, but not completely: I call it anti-Darwinian. And that means a guy goes to college and he’s the guy who gets to be the CEO. And he’s the kind of guy that was the president of the fraternity. Now all these presidents of fraternities aren’t bad guys, but basically, the normal guy that I remembered at college was always there at the fraternity of the eating club. And he’s always there to be there, if you have a bad day, you walk over to the club. And you’re feeling bad, your girlfriend left you, you did bad on a test score, or whatever. And you go over there, he’s always there. He buys you a drink, and you sit around with him. He commiserates with you. You play a little pool, or whatever. And he tells you whatever it is, yeah, my girl left me, yeah well, they’re all no good, usual conversation back and forth. And what would happen would be you liked the guy, you can’t help but like him. You used to wonder a little bit, when the hell did he ever do any work? But you know, he was always there for you. And he never made many waves. He would never said anything too obtrusive or he never showed too much intelligence. But he was a good guy. He goes, that same guy, out into corporate America. And he’s politically, he’s astute. He knows how to get along with people. And it’s he never really rocks the boat. He never comes up with any great ideas. He’s not a threat to his superior. And as a result, he moves up the ladder because in corporate America, there’s really very little accountability. So he moves up that ladder.”

“There’s a good show “How to Succeed in Business” that was out many years ago – that sort of sums it up. If a genius has an idea in corporate America, they give him an idea to resign.”

“And so the guy moves along the ladder, and he gets up slowly to the top. And he has three attributes: He’s likable, he’s politically astute, and he’s a survivor. And he knows when he’s threatened. These are the attributes of today’s CEOs for the most part, with exceptions. You know, he doesn’t ruffle feathers, he doesn’t get the board upset. And as he moves up the ladder, he finally gets to be number two to the CEO. Now the CEO has the same same attributes where he doesn’t want to be threatened and is a survivor. So the CEO will never let anybody be number two who’s smarter than he is. By definition, the assistant of the CEO is a little dumber than the CEO. Now this guy now is the assistant, and the board likes him. The CEO eventually retires and they make this guy the new CEO. The fraternity president we’re talking. Now he’s the head guy. And he’ll bring in a number two guy that’s a little dumber than he is, because he doesn’t want to be threatened. So by definition, we’ll be run by morons pretty soon. And we’re not too far from that point right now in our economic history.”

[Carl Icahn, 2011]

Why Many Projects Go so Terribly Wrong

“Management is essentially an art and, as a manager, you need to learn continuously about your situation. You can do this by studying yourself and the way in which you carry out your work. This is termed ‘reflective practice’.”
[Lawless and Stapleton, 2004]

The software development success rate published in the Standish Group’s Chaos Report is among the most commonly cited research in the IT industry. Since 1995, the Standish Group has reported rather abysmal statistics — from a rate of roughly one-in-six projects succeeding in 1995 to roughly one-in-three projects today. Other surveys like the ones from TechRepublic Inc. (a subsidiary of Gartner Group) are of the same tenor. Although these surveys list project success/failure factors (like realistic schedules, budgeting, leadership of the project manager, etc.) and other interesting data, they do not question the underlying problems responsible for the failures.

Experience with contemporary project management courses and presentations in my country leave me with the impression that management problems can be wrapped into neat technical working packages (Raelin, 1995). If students are left with this impression, they may be unable to transform knowledge gained in one context to another (Reilly, 1982), as this form of learning is done individually and in private (Pleasants, 1966; Polanyi, 1966; Reber, 1993). Hence, if this is the kind of project management knowledge these courses produce, there is no surprise in high project failure rates.

In a wider context, the situation reflects an ongoing discussion about the use of management education in management practice (Hayes and Abernathy, 1980; Cheit, 1985), highlighted by Mintzberg’s scepticism (1996 and 2004) who “was finding too much of a disconnect between the practice of managing […] and what went on in classrooms” (2004, p. ix) and even claims that formal management education is hampering good management practice and therefore the economy. The objections are manyfold:

  • Formal management education separates learning from practice

Education programmes may leave students with the impression that management problems can be packed into neat technical entities (Raelin 1994, p. 303), whereas only later they detect the realities of power and politics at their workplace. Raelin and Coghlan (2006) take the view that formal educational programs often miss opportunities to use the rich experiences of working managers to produce both learning and knowledge.

  • Formal management education is inappropriate to real world settings and therefore to management practice

Reilly (1982) questions whether graduates can think independently, function without sufficient data, change their approach in the course of action, negotiate, and continually reflect and inquire. Cheit (1985) summarises that management programmes have failed to meet society’s needs.

  • (Project) managers cannot be developed in classrooms

It is commonly accepted that experience forms the basis for knowledge (Raelin and Coghlan, 2006). Mintzberg (1973) argues that managers learn in their day-to-day enactment of their managerial roles. Where courses have reportedly made an impact, they have given insight through direct application to real-life issues (McCall et al., 1988).

There are always values at stake in management practice: time, money, people with their hidden agendas and salience, clients, etc. – whereas management techniques infiltrated in sterile classroom settings are free from these pressures. There is nothing wrong about learning certain topics, like corporate finance, in a traditional classroom setting. However, Mintzberg’s (1996) critique goes beyond the teaching of technical subjects in formal management education. If the tacit or implicit knowledge in management practice is not converted into explicit knowledge (Nonaka and Takeuchi, 1995) underpinned by theory, managers are unable to develop a cohesive explanation of their skills (Viljoen et al., 1990). For example, there is no single approach to project management that is best in all circumstances; managers need to adapt their approach to the requirements of different situations. This is called the contingency approach to management (Lawless and Stapleton, 2004).

This likely supports the notion that tacit knowledge distinguishes successful from unsuccessful managers (Argyris 1999), and that tacit knowledge is a product from experience in the real world (Nonaka and Takeuchi 1995), not in the protected realm of theory in classrooms. It is a tangible experience for most managers that management learning does not exclusively happen in classrooms, but on the job (Dawes et al. 1996). Additionally, management learning happens through working with others while all engage in real-life problems (Revans 1971). As Raelin et al. (2006) put it aptly:

“Experiencing itself is not knowledge but is a constitutive element of knowledge. Experiencing needs to be accompanied by some sort of inquiry into experience, an inquiry that seeks to frame meaning and judgments and that leads to thoughtful action.”

This may boil down to the notion that project management is not a profession, but an occupation. Professionalism is supported by education, and real expertise is built through formal reflective practice, also referred to as triple-loop learning (Raelin and Coghlan, 2006).

Worlds Apart

In the following interview I asked a chief doctor of a hospital about strategy, management, and the experienced differences between professional guilds often leading to tensions in the working environment.

Editor: Process management in hospitals has gained in importance due to an increasingly competitive environment of the healthcare industry. Our hospital has become more process oriented as well and recently started to work on process (re-)definition. What opportunities and risks do you see for your department?

Chief doctor:

“Your question is challenging. If you ask about opportunities and risks in our daily routine, the biggest opportunity presents itself by getting a different view from outside, from people whose thinking is not medically oriented, who look at procedures and question the status quo. Getting such views is valuable.”

“At the same time, this also poses a risk: a view that does not account for patients, their individuality and their needs, can lead to such consequences you mention with your questions below. People who are not acquainted with the handcraft try to optimise processes without understanding why the processes are implemented the way they are. Using a metaphor: A shoemaker can probably better assess the process of shoemaking than a consultant who never manufactured a shoe. We should not forget the fact that we are not Toyota, i.e. working in the car industry – the prime example of process optimisation – where they could eliminate all waste and useless work and therefore optimise production. We are not an industry in the classic sense, and we don’t have a standardised product. Each patient is basically unique. Therefore, processes can only be optimised at a superior level.”

Editor: The arguments for more process orientation draw on performance management, resource optimisation, information management, the ability for benchmarking and interconnection with other players in health care. From the view of medical science and practice, is transparency a desirable attribute and what about doctors’ freedom of treatment?

Chief doctor:

“I don’t think doctors have absolute freedom of treatment. Decision making about the nature of treatment are based on ‘outside’ knowledge, e.g. literature, experience made elsewhere. There is a big opportunity to build networks with other hospitals and to exchange experience. Also, our decisions are made together with the patient, or at least with patient’s agreement, after explaining why and how a certain therapy is applied. Therefore, I don’t think process orientation limits doctors’ freedom of treatment. And I also think it does not necessarily lead to more transparency and comparability. It is directed towards cost control. If you want to discuss process optimisation, you need key performance indicators (KPI). And concerning quality of treatment: a totally difficult task to get KPI, requiring heroic efforts. For example, patient satisfaction: A patient is happy if the food was delicious, and if patient care was courteous. And what do you take from that? Another example: mortality. In a big hospital like ours where you have referrals of difficult cases – of course there are more casualties. If you compare us with a smaller hospital you get a distorted picture. The question is how to measure and which KPI are useful in health care.”

Editor: The administration of a hospital is increasingly composed of people with business and economics backgrounds (Albrecht and Töpfer, 2006). The various professional guilds – especially the medical fraternity and business oriented management – are often “worlds apart” (Glouberman and Mintzberg, 2001) because of differences in education, incentives, value systems, etc. Can business oriented models contribute at all in a medical department (Gynaecological Department, Emergency Department, etc.)?

Chief doctor:

“I would like to come back to my Toyota example. Of course we can learn from the car or any industry – but I would never take it as given and try to implement it in health care. The biggest problem between the medical fraternity and business oriented management is the lack of understanding on both sides. Administration has no idea what we are doing, and most of the doctors have no appreciation for business management aspects. That is really a big problem, as these guilds don’t even find a common language that could take them forward. It does not help if administration tries to optimise ‘production’ and it only makes our work more difficult. The process may look as good as it gets on paper, but at the end to no avail. Another risk is that much effort is spent in process optimisation, but some processes can only be defined to a certain granularity: a patient is not a clearly defined product and there is no standard way of treatment which could be optimised from A to Z.”

“I have a big dream: that the people with an administrative background, who know the business oriented models, would help me to extract useful KPI. And as I said, this should happen before touching any process and trying to optimise. We have no KPI as of today. The other thing is that impulses from other disciplines can be very inspiring. As Mintzberg mentioned, the professional guilds are really different worlds, but we might wring an advantage out of that.”

Editor: The danger of process orientation is that patients become an economic commodity rather than sick people in need of specialist treatment (Public Administration Select Committee, 2003, “perverse consequences”). How can a medical department balance individuality of patients against standardisation of procedures (Mentges, 2006)?

Chief doctor:

“Personally, and all the doctors I know of, are primarily concerned with the patients’ wellbeing. And then, we don’t have clear boundaries that would allow us to see everything in black and white. But we can take more or less reasonable pathways in order to achieve a desired outcome. In practice it means we have some economical thinking in the background, e.g. procurement of materials and pharmaceuticals, but treat the patient the way we think is correct. I would never send a patient home just because diagnosis-related groups (DRG) tell me that this patient has used up his lump compensation. It would be the day I change my job should this happen (and many colleagues would do the same). It is the big responsibility we have towards the patients, our ethics. Standardisation supports us in terms of a checklist, so we don’t miss anything crucial with each and every patient we treat. Standardisation can give us some guidelines or boundaries as we go along. But each patient requires an individual decision, and this is clear to all medical professionals.”

Editor: To take an example process: the Manchester Triage System (MTS) was introduced in 1996 by the Manchester Triage Group in order to determine the priority of patients’ treatments based on the severity of their condition (Mackway-Jones, 1997). The Anglo-Saxon world quickly accepted MTS, whereas in Switzerland the system was adopted relatively late. What is the situation in our hospital?

Chief doctor:

“We introduced MTS approximately two years ago, and yes, this makes us a late adopter. Switzerland is indeed late with the adoption of MTS, and also the other system we used before was implemented only 4 years ago. We are late with everything – DRG is another example. On the one hand, economical aspects of health care in Switzerland come secondary – or used to be inferior until the introduction of DRG in 2012. Before that, a hospital was a necessary public service, and a cost factor as a logical consequence, i.e. loss-making. Only private clinics worked in an economical direction, but generally they have no emergency department (ED). On the other hand, paramedicine has become an independent subject on its own in the last couple of years with the effect that we look across the borders and learn what other countries are doing. Exchange of knowledge is more common now.”

“The reason for having a triage system is when we find ourselves in a situation of permanent capacity overload. To be honest, Switzerland cannot be compared to situations we find in Australia or Manchester. We don’t really know capacity overload in hospitals. If you consult some literature and read what crowded emergency rooms mean in Australia and what is the case in our context, then you can also speak of “worlds apart”. In Switzerland we complain on a high level. The time slots we are allowed in the triage system are much higher than those we actually need here. Even the triage system itself was adapted for Europe to have shorter waiting slots. And this might be the reason why there was not really a need to have MTS. So we need it only to be prepared for times of higher demand. Of course if you introduce such a system, you always work with it, not just if you find yourself in a ‘crowded’ situation. Additionally, MTS was not very popular in Switzerland because the Swiss Organisation for Paramedicine favoured another system which is called IES. In contrast to MTS, IES also considers expected consumption of resources – a very important aspect. In other words, such considerations whether a patient needs x-ray, laboratory analysis, wound treatment, etc. However, many triage experts are not very much concerned with which triage system is adopted, but that there is one in place at all. Important is to take one that matches the situation in the hospital. We have evaluated many and think that MTS is very useful in our daily practice. Especially when you have the younger, less experienced doctors on duty and you face a high workload, it helps them to prioritise their assignment. The first triage is done by nurses, and the second by the doctors.”

Editor: In his seminal article, Porter (1996) argues that operational performance optimisation – which includes process orientation – is not a surrogate for strategic thinking. In my search for a hospital strategy, I found a declaration of intent at best, but nothing that would make for a strategy. Do you think that a known strategy would facilitate work (Drucker, 1990) or is the general orientation given in your department anyway?

Chief doctor:

“From a medical point of view, it is very clear what we have to do in our clinic. We don’t need a strategy to do our work. But if we think of a planned direction of our house or of the clinic, and if we think long-term, a strategy is indispensible. It is of uttermost importance how to attract young academics, how to focus our efforts, how to acquire patients, increase employee motivation and job satisfaction – it has implications on our daily work. It is not a piece of theory: first you need to know where you are going, and then how to get there. I miss the big picture. You have fifty clinics in a hospital, with fifty chief directors, and everyone looks after themselves. All have their particular interests and it is not orchestrated. You can only have a look at our hospital information system (HIS), where each department has its own forms. Even here there is no ‘strategy’ to keep it simple and have a common work base. I admit it is not an easy task and sometimes it involves having to say ‘No’ even to some important individual. The fact that hospitals are very hierarchical constructs does not make is easier as well. Anyway, the paroles they sell us as ‘strategy’ at the moment, like growth and 10% more patients – a bit of Ansoff – does not give a direction. Accordingly we see the consequences: jobs are created although we don’t need them at the moment. A dangerous situation…”

Editor: I noticed that all hospitals define their orientation, processes and procedures on their own, i.e. re-invent the wheel. Is that really necessary? Is every hospital basically an isolated entity?

Chief doctor:

“Not at all. No. There are things which need some customisation. But there are many things some hospitals developed which could be transferred to other organisations. Take IT as an example: As doctors with a very busy day, why do we have to attend additional project group meetings and develop a basic patient history for our HIS? I don’t understand it. Why do we have to redefine the OP management? Too much wasted energy, and I am sure there are already dozens of acceptable solutions on the market. Our hospital does not need an isolated application for every bit. And if we look beyond our own nose: We are an educational hospital – a training place for academics. Why must an assistant doctor, who used to work in one hospital, learn to handle our HIS from scratch when he starts to work here? Why are they not the same? And in the next hospital it is different again!”

Editor: Thank you very much for these insights, chief doctor.

Process Orientation vs. Strategy

Process orientation in hospitals has gained in importance dramatically because of a more challenging competitive environment and external pressures from government departments focusing on value-for-money criteria. There is a number of best practices available addressing clinical treatment as “critical pathways” (Dykes and Wheeler, 1998). In the heart of every hospital’s process orientation lies managing the flow of patients (Haraden and Resar, 2004).

Drucker (1990) shows throughout his book that organisations need a mission in order to perform well, and Porter (1996) makes a strong point by arguing that operational effectiveness is necessary, but not sufficient to superior performance. But hospitals operated on cost control do not find it easy to deal with strategic issues (Kaplan and Norton 2001, p. 133). An additional obstacle can be seen in a highly decentralised organisation of experts, where many actors have power and inclination to further their own interests (Mintzberg et al. 1998, p. 261).