To satisfy ever-increasing customer expectations, managers at companies such as General Electric, Sony, Texas Instruments, and Toyota find cost-effective ways to continuously improve the quality of their products and services and shorten response times

Managers balance the costs of achieving these improvements against the benefits from higher performance. Improving quality and decreasing customer-response times are hard work. When managers fail to deliver on these dimensions, the losses can be substantial, as the following article about the Volkswagen Group shows.

“Dieselgate” Derails Volkswagen’s Grand Ambitions^*

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Volkswagen, the German automaker, had a longstanding goal to become the world’s largest and most profitable automaker by 2018. To help meet this audacious goal, VW—one of the largest producers of fuel-efficient and hybrid-power-train vehicles—introduced its new “clean diesel” line of cars in 2009. Long renowned for its high-quality environmentally friendly vehicles, the company struggled to manufacture the new “clean diesel” engine, leading to the largest scandal in the history of the automotive industry.

In 2015, the United States Environmental Protection Agency revealed that VW had installed illegal software in hundreds of thousands of so-called “clean diesel” engines since 2009. The software helped make the cars meet exhaust pollution standards when monitored in tests, but in real life their emissions exceeded the limits. A few days later, VW admitted that some 11 million diesel vehicles worldwide, including 8.5 million in Europe and 600,000 in the United States, had been fitted with the illegal software. Investigators found that some VW cars emitted up to 40 times more harmful nitrogen oxide—which has been linked to respiratory and cardiovascular disease—than legally allowed.

Since 2015, fallout from the “Dieselgate” scandal has cost VW more than $30 billion in fines, compensation, and buybacks, mainly in the United States. Several former company executives were criminally convicted and given prison terms for their role in the fraud. Further, VW’s reputation for quality took a significant hit. Sales in the United States have plummeted, and the company is now focused on the production of electric cars, which do not have the same manufacturing challenges as diesel-engine cars.