Volkswagen of North America

Volkswagen of North America (VWoA) along with the Executive Leadership Team (ELT) had to make a decision regarding how to fund IT projects among the 10 business units that made up VWoA. The issue focused on how to make IT investment decisions. At the start there were 60 projects estimated to cost $210 million, with only $60 million to fund them.

Previously the decisions as to which projects would be funded were decided among the executive sponsors via “unstructured debates”. But since it was decided that projects that aligned IT activities with corporate strategy would take priority the ELT decided that a new process that made negotiation more transparent and had to outline the linkage between corporate strategy and IT activities was needed.

The new process was expected to be more “rational” and less “haphazard”. But many complained that there had been categorization mistakes that penalized them in the process. Others felt that the IT projects that enhanced infrastructure got special treatment and therefore felt the process was not as “transparent” as it was touted to be. The history of IT in the Volkswagen Corporation had not been well developed.

Matulovic was brought in from VWAG to create a business unit that would become a single point of governance for all IT in VWoA. Upon inspection Matulovic believed that there was ambiguity that surrounded the governance and the development processes. As a result he developed the first well-functioning internal IT department that he named the Business Process, Technology and Organization (BPTO). Initially he went about getting control of projects by appointing a project manager to each project.

This project manager was charged with following the defined procedures as well as give regular updates as to the progress of his/her project. From there Matulovic needed to determine if the projects that were underway as well as those for which funding was being requested were in fact the projects that should go forward.

To give a little history about IT in VWoA, between 1992 and 2002 the marketing and selling activities took priority as the executives at VWoA planned to increase sales and brand awareness for its VW and Audi brands. Because of this attention to sales and marketing the IT aspect of the company took a back seat and was more or less viewed at a necessary part of the “overhead” required to do business.

To this end, VWoA outsourced its IT with the IT company Perot over the next 10 years, in an effort to reduce costs. What happened instead was that there were very few IT “experts” inside of the company; not even to manage the contract with Perot. When VWoA recognized its mistake, it brought its workforce in IT back up to an acceptable level and eventually turned over management of the Perot contract to GedasUSA a subsidiary of VWAG.

Even though GedasUSA was a VW company, the IT was still not close enough within the VWoA organization. Soon there was an explosion in the use of the internet not only to track sales, but also as a tool for marketing. It became clear that VWoA needed to indeed centralize its IT functions. There were three phases to the selection of IT projects that would be funded: Phase I – Calling for Projects, Phase II – Formal Project Requests from business Units and Phase III – Transforming Business Unit Requests into Enterprise Goal Portfolios. Phase I put a lot more responsibility in the hands of the Digital Business Council (DBC).

This group was comprised of the eBusiness team that would determine which would produce a list of the final projects that would be eligible for funding. There was a date announced for the submission of projects from each business unit. In Phase II presented their projects in a formalized template that then categorized each project on the basis of investment strategy and technological application. When Phase III was rolled out in September of that year, the DBC realized that the process was much, much more involved than they had anticipated. Even though there was more information available to make the decisions, it was difficult to assess which “trade-offs” would be made.

They came to the realization that some projects could not be instituted until others were completed, possibly pushing that second project further out into the future. They also found projects that had the same goals and therefore could be consolidated into one project, and save costs. It became apparent that it was not as simple as just evaluating the three top projects from any one unit as priorities and goals formed a matrix of priorities. The DBC in turn decided to challenge the selection process.

They ultimately ranked and recommended funding for projects by their goal portfolios. Before reading about the selection process and phases, I tried to come up with a selection process that would give every division an equal “opportunity”. Included in that was a presentation whereby each division would have to show how its IT activities would be aligned with the corporate strategy. Going a step further, this presentation would have to show what it would do for VWoA in terms of return on investment.

Therefore this might not be just one, two or even three projects. The concept of the “portfolio” might in fact be the best strategy. It was determined that the Systems Applications and Products (SAP) implementation project which was only half way through completion would not be funded, and this was a project that needed full funding in order to be completed.

When it was evaluated further it became evident that the reason it was not funded had entirely to do with the fact that the value from the implementation of this project would be seen at the global level, but not at the VWoA level. And since emphasis was on the NRG for VWoA this project did not “fill the bill”. At the same time this SAP project could not stretch out into another year, in hopes that funds would be found in the future. This new process of selecting projects had left on vital program unfunded; a project that was vital to globalization initiative in Germany. Matulovic had so find some other source of funding for the SAP project, even though through this elaborate selection process its argument for funding was deemed inadequate.