Volkswagen of America

Volkswagen of America is the U.S. subsidiary of the Volkswagen automobile company in Germany. Formed in April 1955 in Englewood Cliffs, New Jersey to standardize dealership service in the United States, it grew to 909 Volkswagen dealers in the United States by 1965 under the leadership of Dr. Carl Hahn. Under him and his successor as president of Volkswagen of America, J. Stuart Perkins, VW's U.S. sales grew to 569,696 cars in 1970, an all-time peak, when Volkswagen captured 7 percent of the U.S. car market and had over a thousand U.S. dealerships.

The Volkswagen Beetle was the company's best seller in the United States by a wide margin. Ferdinand Porsche designed the Volkswagen automobiles during the 1930 in Germany. The original vehicles, targeted at the mass market. Were intended to transport a family of five at highway speeds, use modest amount of fuel, and remain within financial reach for 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 high point in 1969. Although popularity of the Beetle declined throughout in the 1970s and its importation was discontinued in the U.S late in that decade, production of Beetles in Latin America continued in the U.S late in that decade, production of Beetle in Latin America continued into the 1990s.

It remains the best selling car of all time. After peeking in the late 1960s, the pattern of sales for the North American subsidiary of Volkswagen settled into a trying cycle ups and downs that became known, due to its jagged contours, as the “Himalayan Chart”.

Sales fell precipitously until the introduction of the Rabbits in 1977, then recovered briefly before dropping sharply again. This time the introduction of the Jetta prompted another short lived recovery, followed by several year descents to a new low point in the early 1990s known informally within the company as the “Valley of Despair”.

PROBLEM

1.How Volkswagen of America handle the schedule and cost overruns of IT projects? 2.How does the Next Round Growth (NRG) program support the business strategy that Volkswagen of America has? 3.How the Digital Business Council communicates to each of the business unit the criteria used to approve a project so that there are no misleading perceptions?

PROBLEM ANALYSIS

Managing IT Between 1992 through 2002, turning the VW and Audi brands around in the U.S. market were the main focus of the executives of Volkswagen of America (VWoA). Marketing and selling activities were the funding priority. At the time, Information technology was considered a source of overhead.

The executives minimize the expenses of its internal IT so that all available funds could be used to run the company’s other important needs. In 1992, VWoA entered into a 10-year agreement with Perot Systems, an IT services provider, in order to reduce short-term IT costs. Perot’s responsibilities are for the maintenance, repair, and operation of the IT production environment.

In 1999, gedasUSA Inc, a new Volkswagen AG (VWAG) Group company was created in the United States. The responsibilities of GedasUSA are for administering the outsourcing contract with Perot Systems and would assume responsibility for IT operations at the expiration of the Perot contract in 2002. Also in this year, VWoA set up “eBusiness teams”. The purpose of this team is to create digital marketing assets and interact with customers in new ways. During the five years from 1999 through 2002, to rebuild the IT environment in order to support the now rapidly growing VW and Audi brands, gedasUSA, Perot Systems, and the VWoA eBusiness teams worked together.

From time to time, it became increasingly clear that the IT function was not performing optimally within VWoA. Responsibility for managing IT was shared among multiple providers with no single organizational entity in control of the overall process. Furthermore, the business units within VWoA were increasingly concerned that IT expenses were on the rise and that IT projects seemed to be plagued with schedule and cost overruns. In 2002, the ELT decided that a new business unit was required within VWoA that could become the single point of governance for all IT issues.

That new organization would consolidate the technical elements of the eBusiness teams and act as a point of contact for gedasUSA, which would in turn act as VWoA’s lead IT delivery partner. To accomplish this, Matulovic was moved from VWAG headquarters in Wolfsburg, Germany to the United States to design, establish, and then lead the new organization. At his arrival, Matulovic set about creating a new internal IT department, called Business Process, Technology and Organization (BPTO). Since the creation of the new BPTO department, the IT projects gradually became on-schedule and on-budget.

NRG Program The sales of Volkswagen are highly fluctuating. Peaking in the late 1960s, sales fell until the introduction of the Rabbit in 1977, then rose before dropping sharply again. Then the introduction of the Jetta made the sales rose but finally fell again. Some managers in VWoA seemed to had fallen into an unhealthy habit of waiting for the next round of new models to rescue them from present difficulties. In the early 2000s, globally within VWAG, senior executives initiated a strategy of diversifying the product offerings from VW Group companies.

They observed that the VW Group brands were overrepresented in small-car and lower-priced segments. but during the previous five years, much of the industry growth had been in midsized vehicles and emerging segments, such as sport utility and special-purpose vehicles. The VW Group chairman initiated a consolidation of the VW Group automotive brands into two groups, each with different positioning directions.

The purpose of consolidating brands into groups was to force some alignment among brands to help determine their requirements for future models in new segments. The implication of the product-diversification strategy being developed would have dramatic impact on the U.S. and Canadian importer operations. If all models proposed were ultimately approved and produced, VWoA would grow from importing nine models in 2002 to over 22 models by 2008.

In VWoA history, this sort of growth in product offering was unprecedented. VWoA’s CEO instituted an organizational readiness program called “Next Round of Growth” (NRG) in order to prepare for the growth in product offering and the associated sales and service volume, and made it the key leadership focus. The aims of the NRG program were to define the goal, function, and organizational changes required at VWoA to support and enable the new global product diversification strategy.

Prioritization VW changed the strategy. Global product diversification was implemented. In order to implement the new corporate strategy, the company involved every business unit. The company involved everyone in the process and made it transparent, so that everyone owned the outcomes. In creating and managing a new process, VWoA involved several organizational entities that would play a role for managing priorities. The ELT, had primary responsibility for executing the NRG program. IT steering committee (ITSC), would guide and approve the process of IT project selection and prioritization. The PMO subsection of BPTO, would administer the IT project-proposal and approval process.

The PMO worked with the team that had developed the business architecture to arrive at a detailed process for moving projects through selection and prioritization. And the Digital Business Council (DBC), composed of representatives from the eBusiness teams within each business unit, would do the difficult work—categorizing projects, assessing their business impact, discerning their alignment with goals, and making trade-off decisions—required to reach a final list of projects for which funding was recommended. CONCLUSION

1.Matulovic decision was right. In order to deal with schedule and cost overruns, a new business unit was required within VWoA that become the single point of governance for all IT issues. The new internal IT department, BPTO, serves the purpose. 2.NRG support expanded product portfolio. It identifies five goal areas. 3.The company involved everyone in the process and made it transparent, so that everyone owned the outcomes. When dealing with budget, the company prioritizes to fund the first rank priority, and then moved to the next rank priority.

SUGGESTION

1.Many of the ELT members 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 thought might be categorization mistakes that penalized their business units. To handle the problem, we recommend communicating with each of the ELT members that the budget available doesn’t meet the total project cost if all projects are to be implemented.

The company should prioritize the priorities that are the main focus of the company. If the company grows, then each of the business unit grows too. But if one of the business units grows, the company might not be growing. So the company’s growth is the main priority. 2.The company may communicates to the ELT members that each of the business units will have the project funded if the company sees it needs to be funded.