In 2015, the German auto company Volkswagen seemed to be positioned to dominate the rest of the decade. VW cars had a strong reputation among consumers as being fun, reliable, and environmentally friendly. The company was well on its way to achieving CEO Martin Winterkorn's goal of being the biggest auto maker in the world. Then a scandal went public that brought VW's progress crashing to a halt and led to Winterkorn's resignation. It turned out that VW had deliberately misled consumers for years by installing software on many of its vehicles that was designed to trick pollutions emissions tests. VW cars were emitting harmful air pollutants at a rate of up to 40 times the legal limit. The company did this because it would make the cars a little bit cheaper and also provide a small boost in performance which would lead to more sales. But the scandal ended up costing the company tens of billions of dollars in fines and lost revenue as consumers' trust in the company sank. Even more shocking is that many at VW seemed to be surprised by this outcome. They thought that misleading regulators and the public this blatantly and at this scale would either go unnoticed or that the punishment would be pretty small. Now we don't know exactly how much Winterkorn and the rest of the VW leadership team knew about the emissions test cheating, but it is clear that they never imagined such a disastrous outcome happening that, looking back, now seems like it was obvious and inevitable. What this demonstrates is one of the two types of misalignments teams face. A misalignment between the team and its external environment. The second type of misalignment is one that forms internally between team members. We'll discuss that next time, for now let's just focus on the first type. The external environment contain your teams larger organization, it can be about your customers or the market. It's what happens when something outside of the team changes and you don't notice or adapt. Suddenly, your team culture that had been successful no longer works and you don't know why. This is exactly what happened at Volkswagen. The executive team had a strong culture built on rules like strategy is set at the top, and you don't question the leader's vision. These rules were the basis for much of the company's success. It allowed VW to be highly unified and motivated around a compelling purpose. In this case, to be the biggest auto maker in the world. But the VW culture didn't change with the market. Over the years consumers have become less accepting of these sorts of environmental scandals that use to be routine within the auto industry. Social media has brought a lot more attention and scrutiny to the inner workings of companies like VW, not just their external brand. So since Volkswagen was a famously insular, family owned company the leadership team didn't change to fit this new environment of transparency and social responsibility. So let's look at the main drivers of these sorts of environmental misalignments on teams. A common mistake teams make is to focus on information held by most people in the group, regardless of whether or not that information is true. If most people on the VW executive team felt that the emissions cheating scandal would go away quietly, the group would have been more likely to come together around that consensus very quickly. Because humans are social creatures we tend to emphasize consensus and common areas of agreement. So this points to the second issue about teams which is that they tend to downplay or ignore information and perspectives that contradict the majority view. Sometimes this happens because of what is called the recency bias. We tend to think that whatever has been working for the team most recently, is going to keep working for them in the future. Another similar decision making error is called overvaluing outcomes. If we have a successful outcome we're much less likely to look for mistakes we might have made in the process that could lead to failure in the future. For example, NBA coaches are way less likely to reassess their game strategy after a win than a loss, even a very close win. In other words, they don't look to fix flaws in their plan even if they just got lucky. A third issue is that we tend to ignore perspectives that might hurt our own interests. This is called motivated blindness. You can see how all three of these decision making biases might have affected the VW executive team. Pushing for aggressive growth at all costs had been successful for the company and taking the growing admission scandal seriously would have meant changing their strategy, which would have hurt their revenues in the short-term. Basically they had every reason to ignore their misalignment with the regulatory and consumer environment, so they did. For all these reasons teams fail to adapt when the circumstances change. And they may not notice that what worked for them up until that point probably won't work anymore. They miss an opportunity to check in on their rules and make the right changes. Next, we'll talk about how teams can be blind to internal divisions and misalignments as well.
