VW of America Managing IT Priorities Case Study 9/12/2011 Company Situation Over the past several decades, Volkswagen of America (VWoA) has struggled with finding and maintaining a steady growth rate. Instead, over the past 40 years the company has had large peaks and valleys in the number of vehicles sold. [1] One plan to smooth out the growth curve was to position the company into two main categories, classic and sport. This positioning led the company to plan for future growth throughout the brands, as well as define five clear goals for the company to manage its growth. 2] These five goals highlighted several areas of opportunity for the IT department in the company as well as within VWoA. The first issue faced to this company is clearly the model of the IT department. The company had six internal departments or groups that prioritized IT resources, headed up by the internal CIO. The decisions made by the IT department of the past were then transferred to Perot systems or gedasUSA, essentially leaving the company without any true IT resources.

Both companies were seen as outsourcing for the projects even though gedasUSA clearly was an internal company, and costs even though billed at market value, were truly less expensive than market price if they were charged at cost to the company. This could have been a major deciding factor as the company estimated the cost of all business projects to be $210M and only had a budget of $60M. This type of outsourcing is also limiting the knowledge of the company’s past IT roadblocks as many or all of the long term associates have left the company during the transitions.

This transitioning allowed each of the business units to begin to develop their own relationships with web developers over several years in an effort to bypass the companies used for IT development in an effort to get projects completed on a faster timeline. This fragmentation of the web developers could easily drive up costs as well as lose any ability to share learning from one project to the next. These fragmented groups came from the ten internal business units that had become accustomed to getting at least their number one priority project done each year.

This has taught each department head to be only concerned with his or her own unit and not fully understand how their goals fit into the company’s long term strategy. This selfish behavior has begun to show itself in the new decision making model in two ways. The first is that each department has begun to tie their wanted projects to enterprise level projects to gain higher priority even if they are not truly related. The second behavior is that ELT team members are pushing for favors from the CIO to “squeeze” un-funded projects into the timeline during perceived downtime.

These favors and peer pressure allow possible projects thru the decision systems established that may not fit into the five priorities established by the company. One example of this is the need for the company to create and fund an enterprise wide distribution system to handle the increase in product models from nine to 22 by 2008. The CIO has been able to get projects on track and on budget but has not been able to find the best way to determine if a project should be taken on. The enterprise wide distribution is a good example of this.

It is a long term solution that will be needed for the company to compete and does not directly benefit any one department. This allows the project to fall to a lower priority and gives the decision makers more money to fund projects that directly affect their day to day lives. Analysis and Evaluation The company has three main sources of IT knowledge at its disposal. The first and most costly is the business unit relationships with the web-service providers. The second is the contract with Perot Systems. The third and least costly is the GedasUSA group.

This is an IT based subsidiary of the VWAG group. By using a true cost for IT resources, the company should be able to increase the number of projects they are able to complete by using an internal cost factor instead of an external structure that they are currently using. This change in cost calculation could have significant differences in ROI calculations as well as changing timelines as costs are reduced. Evaluation of the IT Project Approval Process shows a complicated process along with a minimum of five levels of approval to reach the Project Management Team.

These additional levels of approval and discussion would add time and cost to the approval process. This current approval process also allows a diversion of the intended plan with each interpretation of the project plan as it moves thru those levels, allowing emotion about a project push it thru the process when it should not. Alternative Approaches 1. Focus on base-enterprise systems in first year only. Pro, Keeps enterprise systems up to date and ready for future demand. Con, limits business unit funds for front line projects that are needed. 2.

Get IT all in house or all outsourced with internal controls in place. Pro, In-House keeps most amount of control. 100% outsourced department costs are easy to reduce if economic issues arise. Con, 100% In-House is costly to maintain and has a long learning curve. 100% outsourced gives up control of fine details. 3. Get ready for large in-flow of new car models only. Pro, allows more time to fine tune approval process and is fair to all departments as no one gets funding. Con, business units need some budget to remain competitive. 4. Approve one important project for each business unit.

Pro, seems fair to each business unit. Con, this may not be in the best interest of the company as a whole. 5. Reallocate enterprise funds to fund more business unit plans. Pro, business unit leaders will be happy with added funds. Con, the company may suffer with lack of distribution in the future. 6. Keep decision criteria. Pro, it is currently used, no switching costs. Con, there is too much error in the current system. 7. Change how prioritization is done. Pro, new prioritization will allow funds to go to the area that needs them for strategic advantage for the company.

Con, change is difficult in a large organization and will be costly. 8. Find better way to communicate what is being done when and why. Pro, better communication will engage business leaders more in what is planned and underway. Con, business leaders who’s projects are not chosen may be upset and see the communication as a failure on their part. 9. Recalculate cost of IT projects with internal resources used, not only at market rates. Pro, allow the company to expand the project portfolio. Con, the Gedas will look less profitable to the organization. Recommendations

According to CIO magazine, every IT project should be analyzed against a set of criteria that has the firm’s best interests in mind. [3] The four criteria specifically called out were expense reduction, revenue increase, strategic, and regulatory/security. VWoA has begun to implement a strategic approval process thru the BPTO department. This new approval process should take out some of the error introduced by the previous emotion based process. The past process was primarily based on the feelings of those who would like a project implemented and could change their argument throughout the layers of approval.

The new process should be tuned to the point that the approval process does not go thru more than two people/groups for approval as well as following a strict approval process that is focused on four core metrics weighted heavily towards projects that effect the enterprise as a whole, then business units, and finally individual departments. The focus on the enterprise is critical to the company and it’s future success. According to the 2009 financial report from VW, their plan of economical and ecological growth through 2018 depends on sharing cost savings measures and technology throughout the organization. 4] This knowledge and cost savings can only occur in an organization that has a clear and seamless flow of information to and from the BPTO team. Action Plan • Begin transfer of knowledge and data from Perot to Gedas • Determine if Perot contract should be extended, does Gedas have capacity for all of the projects we want to do? • Formalize process path for project approval flow from departments directly to BPTO Team. Include ongoing project review as well. • Create a list of vendors and projects the eBusiness teams have currently running. Transfer eBusiness responsibilities to Gedas • Dissolve eBusiness team • Dissolve Business Council and steering committee • Restructure cost basis for Gedas, should not be market price. Assuming a 40% margin $60m in projects should really cost around $42m leaving $18m to fund new projects • Request extra funding for enterprise distribution project. VWoA should not have to realize the full burden of that cost • Create quantitative decision model for selecting and prioritizing projects based on company goals outlined on page 14 of the case. With the new decision criteria and a analysis of cost from Gedas, the BPTO team should re-prioritize all 40+ possible projects. Heavier weighting should be given to enterprise projects as well as legal requirements for division and department projects. • Implement current year projects with all details documented of learning and failures to be retained in house or in the BPTO office • Establish a communication channel to keep all business units up to date about what projects will be funded when. ———————- [1] HBS case, Volkswagen of America:Managing IT Priorities, exhibit 1 [2] HBS case, Volkswagen of America: Managing IT Priorities, exhibit 3 [3] http://www. cio. com/article/22976/Prioritizing_IT_Projects_Based_on_Business_Strategy? page=1&taxonomyId=3154 [4] http://www. volkswagenag. com/vwag/vwcorp/info_center/en/publications/2010/03/Annual_Report_2009. -bin. acq/qual-BinaryStorageItem. Single. File/Y_2009_e. pdf