Using the case study of the Volkswagen emissions testing scandal, accounting professor Kay Stice emphasizes that you must be careful of what you measure and then monitor the measurement process carefully. This directly impacts the type of key performance indicators you choose and how you measure them.
- In the fall of 2015, we learned that Volkswagen engineers had designed software that would allow Volkswagen diesel engines to pass emissions tests. The engines did not lower actual emissions, but they did pass a test. Here's some details about this Volkswagen emissions testing scandal. Now, to understand why Volkswagen did this, I refer to an article by John Voelcker at greencarreports.com. Volkswagen has historically produced a much larger fraction of cars with diesel engines than have other major automobile manufacturers.
Diesel cars are more common in Europe than they are in the United States. In 2008, the emissions rules for diesel cars operated in the United States were substantially tightened. No corresponding tightening happened in Europe until 2015. So, someone at Volkswagen, we don't know who yet, decided that rather than change the Volkswagen engines to meet the tougher emission standards, they would instead change the Volkswagen software programming to enable the diesel engines to pass the tougher tests. Now, part of the reason for this decision not to adjust the engines to meet the actual standards is reflected in this reported quote from a Volkswagen executive.
"If US car buyers were smarter and better informed, "they'd buy our clean diesels "instead of all this hybrid nonsense." So, there was some apparent disdain for the whole emissions testing process in the United States, at least with respect to Volkswagen diesel engines. The Volkswagen software was designed to detect when a car was being tested for emissions. This was done presumably by sensing when some, but not all of the wheels are moving. As is the case in a laboratory test when only the drive rain wheels move on a treadmill-like device.
Clever programming. Anyway, when the Volkswagen onboard computer detected an emissions test in progress, it converted the engine operations to test mode. In test mode, the Volkswagen diesel engines met the nitrous oxide standards. However, in actual on the road driving, when the emissions evasion software was not activated, the nitrous oxide levels were from five to 35 times higher. Yikes. Remember, you get what you measure and sometimes you only get what you measure, which is not necessarily what you want.
The Volkswagen engineers had designed their software to allow the Volkswagen engines to pass emissions tests. In the view of these engineers, the goal was not to deliver cleaner air. Instead, the goal was to pass the test. Hey, you get what you measure. So, be careful of what you measure and monitor the measurement process carefully. Now, in a postscript, do we now have to worry about the credibility of all emissions testing? I don't think so. This Volkswagen debacle has cost Volkswagen shareholders billions of dollars in market value and will cost the company billions more in recall and refit costs.
And we have not yet even begun to see the lawsuits that will be filed against Volkswagen by angry owners whose cars have lost their resale value and by people claiming medical harm from these Volkswagen dirty diesel engines. I think this multibllion dollar mistake by some engineers and executives at Volkswagen will serve as a nice object lesson for other automobile industry executives thinking of cutting corners on emission standards.
In this course, accounting professors Jim and Kay Stice explain what KPIs your business should consider in a balanced scorecard, from financial goals to employee and customer satisfaction. They describe how to craft a clear mission statement that complements your KPIs, and how to tie performance to incentives. Plus, get a look at KPIs in action, as Jim and Kay break down a case study examining a trucking company's balanced scorecard.
- The importance of KPIs and measuring performance
- Financial goals and measure
- Customer needs and satisfaction
- Employee growth
- Creating an effective mission statement
- Linking measurements and rewards
- Examining a KPI case study