Improving Development vs. Developing Improvement: Why Nokia Lost the Game and VW's Best Improvement Program Still Can't Catch Up

Picture: AI-generated visualization of a burning oil rig inspired by former Nokia CEO Stephen Elop's "burning platform" memo in February 2011.

Nokia missed the smartphone transition. VW cut car-development time 36 months to under 24, and the competitive gap barely moved. What can your company learn from this?

The competition between companies changes constantly, and many companies do not recognize the weak or even strong signals for the changed market environment before it is too late and the company runs into a survival mode with restructuring plans. Even if the company survives, there are many negative effects on customer, employee and owner (shareholder) satisfaction. Well-known cases include Nokia (missing the smartphone transition triggered by the iPhone in 2007 and Android) and Volkswagen (cp. Cariad, VW's in-house software division, which has become one of the most expensive corporate transformation failures in recent history). Besides these textbook cases, there is also evidence that even a successful improvement program does not fix the underlying competitive situation to a better one, if the competition is moving even faster in the correct direction. Take for instance VW's best, probably most concentrated improvement effort, i.e. the China-speed program with thousands of engineers, that still runs at roughly half the cycle speed of the competitors it is chasing. The gap did not close even under pressure, although it narrowed while the benchmark kept moving. Thing is, if big corporations, with all the money, knowledge, and both internal and external consultancy support, do not get the competitive momentum swiftly in place, it is clear that a proper analysis and synthesis are missing, besides a properly executed implementation and follow-up. Bear in mind that if the big guy fails big, it does not mean that the smaller guy would fail less. The dilemma concerns most companies and the dilemma is only intensifying. The common denominator for the cited Nokia and VW cases is that the solutions offered to the customers were not competitive. I will focus on this setting in this blog post. Problems related to e.g. the production, logistics or after sales are not considered.

With the above competitive challenges in mind, high-performance process improvement (HPPI) deals with the improvement challenge via three steps:

1. Arrogance and complacency level analysis (red, yellow, green flag).

2. Applying HPPI solutions to the focus process (improving development).

3. Applying HPPI solutions to the mechanism improving point 2 (developing improvement).

First you need to spot the level of arrogance and complacency towards process improvement at the board, C-suite level, executive level or program leadership for the specific company, then check for real authority, and finally check if the company has an actionable window before crisis (Figure).

Figure: a successful improvement effort, big or small, needs an actionable window (a "green flag") as the starting point.

The arrogance and complacency level peaks mostly at the hubris moment, when the company is at the top of its current business journey, many times due to great order levels and decent profit levels, and favorable business-press coverage. What could go wrong, and who could even threaten us? We are invincible! Don't fix it if it ain't broken! These are famous "last words" so to speak. You are on top, until you are not. Who that leverage group actually is, the people with real decision-making power, varies a lot by company. The arrogance and complacency level is usually revealed well-enough via one or two discussions with the management on how and when to improve the competitive position. A red flag means that there will likely be major problems within 3-5 years, and a management change would likely be needed to avoid a meltdown in terms of stakeholder satisfaction later on (customer, employee and/or owner satisfaction). Mostly, the management continues at least until the big problems become public. In such as setting applying HPPI solutions is not in practice possible because the effort lacks funding and management support.

A yellow flag also equals a red flag, as this is a clear sign that the management cannot make decisions swiftly where it counts due to, e.g., responsibility without real authority to make decisions. Thus, time usually becomes the most scarce resource once the velocity debt has piled up sufficiently. When the oil rig is burning with an increasing speed, and you wake up with a freezing North Sea 30 m beneath, a rescue is possible, but serious damage is inevitable.

A green flag means that there is still hope to get the competitive situation on the right track. As always, it is all about Process Improvement Yield (PIY; 0-100%) in the end (formula: plan quality [%] × plan coverage [%] × implementation quality [%] × implementation coverage [%]), but there is one important issue to know. The difference between improving development and developing improvement:

• Improving development, i.e. running an initiative that changes a specific object-level process. VW's China-speed program is one example: VW took the car-development process and improved it (from 36-48 months down to 24-36 months, cost down ~40%). It is a completed and measurable act of improving development, and by that narrow measure, it worked.

• Developing improvement, i.e. building the organization's durable, repeatable capability to run high-performance improvement initiatives, across any process, in any part of the company, without needing a bespoke crash program each time, or even better run the improvement efforts continuously at a sufficient performance level to keep the organization agile, and to catch up and overtake the competition. That is a capability an organization either has matured or has not. It is independent of any single success story.

So, would improving development and developing improvement have saved Nokia in 2007? The answer is no, because in 2007 the flag was red due to arrogance and complacency, and Nokia was at its hubris peak. The irony is that Nokia's engineers had prototyped touchscreen, app-store-like concepts years before the iPhone. The technology was not really the blocker, the willingness to cannibalize a wildly profitable existing business was. Without this no-go decision and selection of Windows Phone, improving development and developing improvement could have had a real chance to change Finnish business history of this era to a more positive one. The question is, can the company avoid the same kind of pitfalls in the future when competition evolves?

VW's case is different from Nokia's. VW's China-speed program is a regional, largely standalone effort (Hefei, with some 3,000 engineers, its own local architecture) rather than a method that appears to have propagated back into how Germany, or the group's restructuring effort, is being run. Meanwhile, the German restructuring, which is a different object-level target (cost base, headcount, plant footprint), is stuck at the plan-approval stage entirely, with multiple consultancies producing competing scenarios and the board rejecting the plan outright. If VW had a mature, general-purpose improvement capability, you would expect the discipline that worked in China (fast iteration, clear ownership, measurable cycle-time targets) to at least show up in how the German plan was built and sequenced. There are no evident signs of such a transfer. It is fair to conclude that what VW did was to improve development, but failed to develop the improvement. From an outcome point of view, the efforts do not scale up fast enough, which also makes it harder to raise the ambition level. This means that the success of the VW China-speed program going forward is unlikely to be repeated easily enough to catch up and overtake the competition. This also means that other key processes are subject to a low improvement performance that does not add value to really catching up with the competition. To really catch up, VW needs much better performance in how it develops improvement, in general. Running already available HPPI VISTALIZER solutions swiftly, both when improving development and developing improvement, is the key to getting things on the right track. For this, only a green flag is needed, well before the oil rig, or in VW's case the car, is on fire.

Your company is currently probably somewhere between hubris and fire, so shaping up now to meet today's and tomorrow's challenges, by raising the green flag, is probably the best business decision you can make this year, wouldn't you agree? Skip the hubris, invest the time and money, and deploy real decision-making power where it counts, and you're good to go.

What are the Recommended Next Steps for an Organization Aiming at HPPI?

HPPI / VISTALIZER is by nature a modular solution. This means that you can build your own HPPI / VISTALIZER setting based on your specific needs. Good starting points for an organization aiming at an HPPI include the following actions:

• Understand the concept: read the book High-Performance Process Improvement (e.g. the Preface and Chapter 1), study the subject using the free version of the app VISTALIZER for Enterprises (VfE) available at the App Store and Google Play (e.g. via the three Audio Blogs, and curated documents such as the Executive's Handbook and HPPI Awareness Booster available in the module Proposed Learning Paths), and/or run an HPPI expert-led half-day seminar for the management. You can also download the handbook here.

• Discover your current PIY level: the solution VISTALIZER Acid Test provides a score at what level your improvement work is in reality. The review is done by a seasoned HPPI expert.

• Disclose the real improvement potential of a key process via a high-class process improvement plan: run a VISTALIZER Report (a "mini-project" lasting a few weeks, and consuming some hours of the key persons' time).

• Understand thoroughly the knowledge and skill level required to run the implementation according to HPPI criteria: run an expert-led education and training effort using the VfE app as the supporting technology. This educational and training effort may be 1-14 sessions long (one session equals a half-day education and/or training).

In my experience, curious, knowledgeable and visionary executives wanting real improvements beyond traditional low-performance approaches such as lean are the foundation for really getting things on the right track. For more information, please send your inquiry to pdca@vistalizer.com.