Manager. Harvard University

Volkswagen's U.S. subsidiary has launched a new pro-cess for allocating scarce IT budgets across a portfolio of project requests, in an effort to align IT activities better with corporate strategy. Now that they have used the process for the first time, though, and arrived at a list of approved projects, no one seems happy with the outcome. This case provides an opportunity to discuss the difficult governance issues that arise in making IT investment decisions. As you read the case, consider these questions:

What is your assessment of the new process for managing priorities at Volkswagen? Are the criticisms justified? Is it an improvement over the old process? Who controls the budgets from which IT proj¬ects are funded at Volkswagen of America? Who should control these budgets? How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system?

Dr. Uwe Matulovic, chief information officer (CIO) of Volkswagen of America (VWoA), placed the telephone in its cradle and leaned back in his chair, replaying the just-completed conversation with one of his peers from the Executive Leadership Team (ELT). The call, Matulovic mused, had been similar to three others he had participated in that week, each with a different ELT member. The results of a new prioritization process—a list of IT projects that would be funded in 2004—had been unveiled only a few days earlier. But already a storm was gathering.

The phone calls from other executives had common themes. All the callers had expressed concern that high priorities for their areas of the company had not been funded. Some had repeated views expressed during the prioritization process by people who worked for them about supposed categorization mistakes that penalized Copyright © 2005, 2007 President and Fellows of Harvard College. Harvard Business School Case 606-003. Professor Robert D. Austin, Dr. Warren Ritchie, and Greggory Garrett prepared this case as the basis for class discussion rather than to illustrate effective or ineffective management. Certain details have been disguised. Reprinted by permission of Harvard Business School.

their business units. And each of the calls had concluded with an informal request to insert an unfunded project (or two) into the IT department's work plans. "We don't have to reopen the process," the most recent caller had said, "but perhaps spare capacity might be applied to make some progress on this project in 2004—we've done this before, and it would mean a lot to our area and to the company's growth plans." The 10 business units that made up VWoA had proposed more than 40 projects, with funding requirements totaling $210 million (US). A budget of only $60 million (an amount capped by Volkswagen Group (VWAG), the parent company of VWoA) made some degree of disappointment inevitable.

But the intensity of pushback against the new process was surprising. The ELT had endorsed the idea of improving upon the old way these decisions were made, via unstructured debate among executive sponsors. The new process, it was agreed, would make trade-offs explicit and link projects and the core business processes they impacted with VWoA corporate goals. An orderly, rational process would replace what, in the past, had sometimes been haphazard. But now, questions were being raised about whether the new process was right for VWoA.

450 Module Three IT Leadership

EXHIBIT 1 The "Himalayas Chart" Some business units had seen none of their projects funded. Whispers throughout the company suggested that the process was "too theoretical" and noted that IT infrastructure projects had been treated separately, not forced through the same process, which many considered unfair. As Matulovic peered through the window into an overcast sky, he wondered whether he should order exceptions to the process. If a project was small and just below the line of funded projects, maybe IT should figure out a way to get it done.

Or maybe he should stand his ground and defend the new process. Matulovic did not work for the other members of the ELT, but he did have to work with them. Whatever he decided could certainly affect working relationships, so he would need to consider his options carefully. Backgrowid—Volkswagen of America

Ferdinand Porsche designed the first Volkswagen automobiles during the 1930s in Germany. The original vehicles, targeted at the mass market ("Volkswagen" means, literally, "people's car"),  were intended to transport a family of five at highway speeds, use modest amounts of fuel, and remain within financial reach of most people. The company's signature platform by the late 1940s was the Beetle, which, with its rounded styling and reliable air-cooled engine, became internationally popular. For about 20 years, sales of the Beetle hurtled skyward, propelling the company's total worldwide vehicle sales past a million in 1955 and to a high point in 1969.

Although popularity of the Beetle declined throughout the 1970s and its importation was discontinued in the United States, late in that decade, production of Beetles in Latin America continued into the 1990s. It remains the best¬selling car of all time.' After peaking in the late 1960s, the pattern of sales for the North American subsidiary of Volkswagen settled into a trying cycle of ups and downs that became known, due to its jagged contours, as the "Himalayas Chart" (see Exhibit 1). ' Other marketing nameplates have sold more units, but these nameplates were not the same vehicle in different geographies, nor did they retain as much consistency in core design as the classic Beetle.