Matulovic who is the chief information officer of Volkswagen of America (VWoA) has a tough decision to make. Volkswagen’s subsidiary launched a new process for allocating budgets across the business. With the new process, they have derived at a list of approved projects that no one is happy about. Calls came flooding through to Matulovic with an informal request to insert an unfunded project into the IT department’s work plans. VWoA had projects requiring $210 millions and the parent company of VWoA (Volkswagen Group, VWAG) budgeted only $60 million. In choosing the right projects to fund was a process that consisted of three phases:
Phase 1-Calling for projects, communicating process, and identifying dependencies, Phase 2-Formal project requests for business unit, and Phase 3-Transforming business unit request into enterprise goal portfolios. Phase I was able to reduce and re-categorize projects because business units realized that many of their initiatives were very similar to other initiatives throughout the company which lead projects to become grouped together into common enterprise projects. This phase identified dependencies among projects.
Therefore, without completed projects, the other projects could not be started. This phase also involved members becoming exposed to information about proposed initiatives across the company which gave them a greater understanding and appreciation of different business units. This helps migrate away from the current silo thinking and start focusing on initiatives in an enterprise-wide level. At the end of this phase, the proposed $210 million was simplified to a list of projects that required $170 million. Phase 1 was a critical starting point in aligning all business initiatives and trimming down projects. With the list in hand, we now step into Phase 2.
During Phase 2 each business unit was required to classify each proposal into the type of investment (stay in business, return on investment, and option-creating investment) and technological application type (base-enterprise IT platform, enterprise applications, and customized point solutions). These classifications would influence how particular investments would be treated in the selection and prioritization process. Business units had to rank projects by priority and associate projects with enterprise goals.
There was criticism that projects were reclassified as enterprise, but they really weren’t enterprise projects. The is because business units had to think of ways to associate their project with enterprise goals to improve chances of funding since the stay in business projects were given high priority, then the enterprise projects and finally individual business units. So if your project wasn’t a stay in business or enterprise project then the business units were tempted to reclassify their project to an enterprise project instead of a business unit.
This built frustration as managers are looking for their own funding but don’t have the overall view to properly prioritize which lead other projects get the funding. Finally, Phase 3 consisted of ranking business unit goals based upon enterprise goals/needs. The key concept of governance is to align organizational activity with corporate goals and strategy. The assessment of the new process is to align business goals with enterprise goals and fund the top priority projects that would support the next round of growth goal areas.
The NRG program is the readiness program called “Next Round of Growth” it was aimed to define the goals, functions, and organizational changes required to support and enable the new global product diversification strategy. The Next Round of Growth Enterprise Goal Areas is to support expanded product portfolio which is customer loyalty, new vehicle value, pre-owned vehicle business, stable infrastructure, and optimize supply flow. In order to reach a final project list, VWoA had to simplify and categorize projects, assess their business impact, and distinguish their alignment with goals all while making trade-off decisions.
The process is an improvement over the old process since the business units were required to prioritize based on the enterprise-wide goals instead of their own business unit. It also avoided the less organized and less centralized method in prioritizing projects. The new process led business units to work together and make decisions that would affect their unit using the overall company strategy. They would also recognize other business unit’s priorities and provide a greater appreciation of their business unit and the work that they do. This helps alleviate other business units ranking their initiatives as more important than another.
As this being a new process at VWoA, this process failed to capture and fund the supply flow project. The unfunded supply flow project revealed a flaw in the new process system. The supply flow project did not get funding because it was recognized at the global level and not at the VWoA importer level. The loss of funding would constitute a major setback for globalization initiatives based in Germany so this particular project must be funded somehow and Matulovic had to think of options on how to make this happen.
The recommendation at this point is to remain focus on the most important strategic goals of VWoA and proceed funding all projects in the final project list in the top-ranked portfolio. He should not take funding from other funded projects to try and help fund the supply flow project. That would lead to intense push back and affect working relationships since projects which are important to VWoA’s strategic goals will be neglected. He should also not leave it to the supply flow area to work out what to do about this project because that decision would lead to a project waiting to fail.
Dumping a project on them to figure out, without the proper resources is nearly impossible to successfully complete. Re-opening the new prioritization process that took nearly 3 months to complete is unnecessary and wasted time. The process will not have to be reopened, rather to find alternative sources for funding to proceed with the supply flow project. Due to the global reach of the project, it is unreasonable for the project to be funded solely by VWoA, but rather allocating the funds under the parent company or among all companies under the umbrella of the parent company, Volkswagen Group.
Volkswagen Group sets the budget at VWoA and several organizational entities at VWoA would play a role in controlling which projects are funded. There are four specific teams involved in this process: the ELT (Executive Leadership Team), the ITSC (IT Steering Committee), the PMO (Project Management Office), and the DBC (Digital Business Council). If they are unable to find alternative funding then they should consider this project as an exception or special condition to figure out a way to fund the project. This is common where successful businesses continuously create new opportunities which cannot be covered by existing IT decisions.
Matulovic should reach out to the supply flow group in Germany to present and communicate the different options for alternative funding and the importance of funding the top-ranked portfolio and the supply flow project and get them involved in the solution process. In managing IT priorities in the future, there needs to be a change in the new process to include support and recognize the global level projects and not just at the VWoA level. This ensures other vital projects don’t fall through the cracks like the supply flow project in this case study.
The Volkswagen Group should reevaluate that proper funding is allocated for both the VWoA and global level initiatives. Matulovic’s fellow executives that communicated the concern of unfunded projects were involved in the decision making process and if they thought these goals didn’t align with the company’s goals, then they should have voiced their concerns to the process teams, ELT,ITSC, PMO, and/or the DBC, not to Matulovic. The expectation of all VWoA’s employees should be in support of the company’s overall strategic goals, not just their own business units.