FUTURE DRIVE Daimler Chief Plots Cultural Revolution

Chief executive Dieter Zetsche talked to WirtschaftsWoche about autonomous driving, e-mobility, ride-sharing and breaking down Daimler's hierarchy to meet challenges from Silicon Valley.
Dieter Zetsche, CEO of the Daimler.

In the last two years, Daimler chief executive Dieter Zetsche has overseen one of the most astounding comebacks in German industry: He turned the sleepy carmaker, once threatened with slipping behind competitors Audi and BMW, into one of the most successful companies on the DAX blue-chip index. Sales, revenues and profits are all at record levels today.

His contract runs until 2019, and the 63-year-old could easily rest on his laurels. But that is not Mr. Zetsche’s nature. Instead he intends to begin one of the most far-reaching restructurings ever at a German industrial company. Everything must change at 130-year-old Daimler, from brainstorming to decision-making.

It will be nothing less than a “cultural revolution,” he said in a interview with the business weekly WirtschaftsWoche, a sister publication of Handelsblatt.

WirtschaftsWoche: Mr. Zetsche, the driver of a Tesla was recently killed in a collision while the car was on autopilot. Has the dream of self-driving cars come to an end?

Dieter Zetsche: Most certainly not. In the near future, we'll have autonomous automobiles, and we at Daimler will be in the vanguard. Not all the issues have been resolved yet. If something positive is to come out of this tragic event, then it must be an intense debate about how to handle technology responsibly. As manufacturers, we must be sure at this point to dare only as much as we are technologically capable of.

Will it now take longer than planned until we can let ourselves be chauffeured around in our cars?

No, we’re not adjusting our timetables. We have always planned to hand over to customers only that technology that we are convinced reduces risks to an absolute minimum.

The ride-sharing service Uber is investing a lot of money in self-driving taxis. Is that a business model for Daimler as well?

We’re not working on cars without a steering wheel. We want to always give people the chance to decide whether they want to drive themselves, supported by a protective network of assisting systems, or with autopilot. At Daimler, we are working on our own ride-hailing technology “Car2Come." I don’t have to go to the car; when summoned, it comes to me.

 

We want to always give people the chance to decide whether they want to drive themselves, supported by a protective network of assisting systems, or with autopilot.

Aren’t you leaving a commercial field to the competition?

Connectivity, autonomous driving, electromobility and ride-sharing will determine our success in the future. The most interesting developments will arise out of their combination. So we have to be at the forefront in all areas. But I can’t say today what the new services will look like. When our rivals claim that in year X, 30 percent of their revenues will come from services around the vehicle, that’s not based on facts.

But you have set one target for the near future: €1 billion in revenues from mobility services by 2020. At the moment, the annual figure is only €150 million.

With Car2Go, our biggest mobility service, we initially grew quickly but then realized we have to work on becoming more profitable. This consolidation brought a dent in our growth that we’re currently overcoming. But we can still reach our sales target of €1 billion by the end of 2020. Especially because we still have a few new ideas. With our Smart brand, for example, we’re currently working on various innovative services around the car. The vehicle’s utilization spectrum is to be expanded with services that make people’s life easier, especially in the city. There are many ideas, such as private car-sharing among friends.

That sounds like an Airbnb for cars, a sort of shared housing for mobility.

You could say that.

Aren’t you worried that carmakers will become superfluous with these brave, new business models?

What is the alternative? It doesn’t help to fight against digitalization. Everything technically possible and that makes life easier for the customer, will happen. At the same time, the bottom line is that all of these business models are based on the hardware, the automobile. All we can do is think about how we can be the first to implement and offer these things. We have to be prepared to constantly re-examine our core business and adapt it to market demands.

So you are prepared to bury your own business model if it stands in the way of a more innovative approach?

Absolutely. We live in a disruptive world. We would rather be the disruptor than the disrupted. Before we’re attacked, we would rather attack. After all, others will too. It’s a matter of our being more successful in our attack than the others would be.

Who will win the race? The one that’s fastest or the one that’s more methodical?

The fastest. There’s a modern way of doing development work that’s being used in digital fields with many things running parallel: having ideas, testing them, developing and improving prototypes. At the same time, our guiding principle, “the best or nothing,” cannot stand in our way. Of course, responsibility must take precedence in this over speed. But we can’t bring everything onto the market only after it has been perfected. In digital matters, if it isn’t safety-related, we can also occasionally be content with 80 percent and quickly and constantly continue to improve the product. Striving for perfection in our vehicles on the one hand and rapid progress in development on the other are two paths that we can’t see as being mutually exclusive in our company but rather as the driver of our success. All the same, the safety of our customers always comes first.

That sounds like a cultural revolution at Daimler.

It is a cultural revolution. We initiated a process six months ago involving around 1,000 employees. It went around the globe, across all age and hierarchy levels. What came out of it are prototypes for our corporate culture in the year 2020. A lot of revolutionary ideas were developed. We’ve just presented the results to our top 100 senior executives – and they were thrilled, which is something you can’t normally expect from this group. I am convinced that we will soon be a fundamentally different company. Daimler will be much more faster and flexible in how it acts than before.

How do you expect it to work?

Through a swarm organization, for example. I am supervising this field as mentor. Many startups and tech companies work that way. This method supplements the hierarchical-management pyramid with cross-functional and interdisciplinary groups and eventually replaces them.

And how will it be seen to that everybody is headed in the right direction?

We are putting parameters in place for that. What are the values that guide us? What approach do we adopt? It isn’t the decision-making pyramid that is of primary importance, but rather the network. We see a huge opportunity in that.

In concrete terms, how will that be done? In developing an engine, for example.

We won’t transform the Sindelfingen plant tomorrow into a swarm, no. So far, we have developed 30 subject areas within the eight management-board divisions where we plan to use that organizational form. We will learn with them how far we can go in its application.

So, in the end, you are the one who still ultimately decides.

Such a system naturally only makes sense if we radically question the existing decision processes. At the moment, we have up to six levels of decision-making. We want to have only two decision-making levels for every issue by 2020. Such as the person in charge and the team manager, or straight from the person responsible to the executive board.

More concretely, that means some executives will have their present decision-making authority cut back? Or will whole levels of the organizational ladder be abolished?

No. Many things are working well and proper. We want to create an even stronger culture of trust and thus make even quicker decisions possible. Our employees are motivated and competent. We want to take full advantage of this potential through a more flexible and less hierarchical organizational structure. In this way, every individual will be better able to contribute their expertise and have a greater impact. We have already eliminated redundant levels of decision-making from several processes.

There are few examples of successful, nearly hierarchy-free companies. Why should Daimler be one of the ones to succeed with that?

We are convinced it is the right time to bring our management culture in line with the future and thus make our organization more agile and innovative. With fresh input from the whole team, we will make ourselves fit for the future. At the same time, it isn’t our goal to dismantle hierarchies but to restructure them to be easier to penetrate. We want to strengthen professional expertise, dismantle bureaucratic hurdles and actively promote interdisciplinary cooperation.

China is a major driver of the global spread of e-mobility. For one thing, its cities need emission-free vehicles. For another, that is where Chinese manufacturers see their chance to catch up with Western carmakers

If only two people will be making the decisions, what decisions will you still be making?

Well, I’m not going to be out of work. We are creating parameters for developments that we don’t even know the details of today. We are dealing with the fact that no one can plan what’s coming. For that, we need new forms of organization and all our intelligence to quickly recognize opportunities, understand changes and adapt.

What sort of a timetable do you have until then?

By the end of 2016, we want to have all 150 subject areas that the teams presented worked out and signed-off on. The goal is to have everything in place by 2020 – maybe it can be done sooner. We will learn a lot, but we will also fall on our faces in some areas.

Are there fellow executives saying, “Dieter, do you know what you are doing there?”

Naturally. We didn’t even know – to exaggerate a bit – whether the employees would come up with the idea that beginning tomorrow we no longer need an executive board. We could have argued that, due to corporate governance, it is certainly useful in Germany (laughs).

Your board colleagues will be relieved . . .

But seriously, there will always be people who slow things down. But I’m very optimistic. We have to change because the pressure is there from the outside. Ideas develop, but not from the top down, rather from out of the company. The young employees who presented the results were very authentic. We, as the board of directors, could never have done that in such a way. To see what kind of potential we have and how our people became so enthusiastic about it was simply fantastic.

Daimler has been very successful recently. Don’t you have a lot of colleagues saying, “Why does Zetsche want to change everything when things are going so well?”

Naturally, we could pop open a bottle of champagne and say: Things are great, we’re historically at the zenith of our success, we’ve met our strategic goal of a 10 percent EBIT margin, the brand is developing positively –  we are reaching more and more young people. Everything’s fantastic. But we have here and now, from a position of strength, the chance to lay the groundwork for success for Daimler’s next 130 years. That gets me excited and we, the members of the board, see that as our joint task.

Part of this joint task is the introduction of electric cars.  Will Daimler manage in time?

The industry is definitely on the road to electric mobility. The crucial question is in which timeframe. As a producer, you have to be sure not to miss the right time. It’s like pouring ketchup out of a bottle. When you hit it, you know at some point something is going to come out. You just don’t when, but when it comes, it really comes. Then it’s bad if you aren’t ready for it. It’s similar with electric mobility.

There are rumors that Daimler will develop its own sub-brand for e-cars. Is there anything to that?

We will significantly expand our activities that have to do with electric mobility. To that end, we have become far more ambitious in our planning.

What are the arguments for your own sub-brand?

Brands are a great way to clearly differentiate, internally and externally. Look at AMG [Mercedes-Benz’s high performance division], Maybach [a sub-brand of luxury cars] or our Mercedes digital ecosystem. Seen from that angle, it makes sense to also put e-mobility off on its own. You can also define the e-car as just a technical variation of the drive train. But it’s probably much more.

Are you going to put money into the e-infrastructure? Audi CEO Rupert Stadler has announced he will be doing that.

We are contributing to the standardization of the charging stations, and we are discussing with other companies about whether we will take part beyond that in the developing of a charging infrastructure. But we haven’t, as yet, made a final decision.

Does your new fondness for electric vehicles have anything to do with the Chinese market? The government there is planning to drastically limit gas emissions.

China is a major driver of the global spread of e-mobility. For one thing, its cities need emission-free vehicles. For another, that is where Chinese manufacturers see their chance to catch up with Western carmakers.

The Denza –  your electric model out of the joint venture with BYD –  wasn’t all that successful.

At the time, we were the first manufacturer that had produced an e-car in China for China. Denza has earned us a good reputation with the government, so in that sense, it was a very successful project. In terms of unit numbers, we have certainly had more successful models.

How do you plan to comply with the CO2 legislation in China? Beginning in 2020, a fleet average of 5 liters [1.32 gallons] in fuel consumption per 100 kilometers [62 miles] will be in force. At the moment, the Daimler fleet of passenger cars manages only 7.5 liters.

We are facing an equally stiff challenge in the future in Europe, the USA and China. We have made tremendous progress with the combustion engine. But that isn’t enough. We are additionally focusing on electronic components, for example, to recover energy when braking. In addition, we offer plug-in hybrids that make it possible to drive on electricity part of the time and, of course, battery electric vehicles. Moreover, we are continuing to focus on diesel and gasoline engines in Europe and are also not having fundamental doubts about them.

What you said about diesel sounds a lot like whistling in the dark. You just stuck €2.6 billion into a new diesel engine, but if you were to be honest, you would say the diesel is dead.

It’s obvious that the diesel is the subject of criticism at the moment. There is no getting around it. But objectively, there is nothing wrong with the diesel. With our latest OM 654 diesel engine, we have already met the extremely strict emissions targets of the future. The environment doesn’t have to pay any emission price with the diesel for the CO2 advantage of around 20 percent. It would be absurd for manufacturers and society to give up this CO2 advantage. We are also not experiencing any mentionable change in demand for diesel vehicles in Europe.

The U.S. Department of Justice has asked Daimler to review its exhaust-emissions certification process for diesels in the United States. How far along with that are you?

We have experience with U.S. authorities and know it’s better to communicate less as long as the proceedings are still in progress. We are holding to that.

You want to be ahead of Audi and BMW as the largest premium car producer in volume by 2020. Aren’t you lacking a strong model in the smaller car segment like Audi’s A1 or Q2?

We believe that we can pass BMW and Audi even before 2020. However, volume can never be an end in itself, but only confirmation of the fact that we have the most attractive overall package. We believe that we can also manage that without a model in the B segment. We have very successfully expanded the premium class with our compacts, and at the moment it also looks as if we would be able to grow faster than the competition without a B model.

This interview originally appeared in WirtscchaftsWoche, a sister publication of Handelsblatt. To contact the authors: [email protected], [email protected], [email protected]