Volkswagen’s crisis mismanagement bug

Volkswagen has been in the news for all the wrong reasons lately. And the company response, or lack of it, carry some good lessons for SMEs who may find themselves in similar situations with products gone wrong and unhappy customers at the gates.

I won’t go into the nuts of bolts of VW’s problems – you can read about that here. The basic scenario was that there had been recalls overseas and there was a horror crash here that was potentially caused by a problem with one of their cars, a problem that potentially also affected other models.

VW was in a tough spot. Say too much and risk creating panic where it may not have been necessary. Don’t say enough and watch speculation and innuendo fill the void.

It chose to pretty much say nothing with the expected results.

Perhaps a bit of crisis management history could have helped it out. The “gold standard” for handling these kind of issues is often said to be Johnson and Johnson’s response to product tampering of Tylenol pain medications in 1982.

After it had been revealed that seven people died after some bottles had been poisoned in one area of the US, it voluntarily recalled all Tylenol product across the entire country BEFORE being asked to do so by any regulatory authority.

It instituted a 2500-person communication team to tell the public what was going on and then also redesigned the bottles to reduce tampering risks in the future. And the result was many customers had more confidence in the product after the recall than before.

The cost was huge; however, as it learned through other recalls, the cost of not doing it was bigger and had longer lasting impacts.

In contrast, VW appears to have only instituted recalls under public and regulatory duress.

As I noted when interviewed about the VW situation a couple of weeks ago, inaction can have a negative impact on the brand – either give the all clear or do the recall.

Anything in the middle creates a question mark in customer’s minds about the reliability of the car, and reliability goes to the heart of the VW brand.

Undermine that and you’ve got a much bigger problem on your hands than the costs to recall and fix the cars.

So what can you learn from these two contrasting approaches if you do find yourself in a crisis situation because of a product fault or service failure?

1. Act decisively – whether that is to reassure that everything is fine, or to announce a recall. Authentic organisational values are critical here, they guide you in your responses to situations. In Johnson and Johnson’s case, its credo which put the interests of customers ahead of those of shareholders was a big part of why it responded as it did to the tampering crisis.

2. Communicate clearly – what is the problem, what are the risks to customers, what are you doing about it, what do customers need to do? The initial VW response of “At this time we do not plan to announce a recall” was the kind of non-response response guaranteed to increase, not quell, anxiety in the marketplace. In today’s media environment any vacuum will be quickly filled with speculation, especially by those on social media.

3. Fix it – whatever the cost of fixing it, the cost of not fixing it will likely be greater. Even if the issue that created the problem wasn’t your fault. Johnson and Johnson was the victim of outside product tampering by someone not connected with the company. It’s your product or service, so it is your problem to manage. Virgin Australia found that out when its outsourced online booking and check-in system failed a few years ago. If it’s your name on it, it’s your problem no matter where the problem originated.

VW has now instituted a recall of certain models here in Australia, but it may be too late to undo the damage to people’s confidence in the short term. Only time will tell if that damage is long term.

See you next week.

Michel is an independent brand analyst dedicated to helping organisations make promises they can keep and keep the promises they make – with a strong, resilient organisation as the result. She also publishes a blog at michelhogan.com.