Volkswagen Case Study

Key points of case

1) 10 business units in VWoA 2) Proposed 40 projects for $210 million ==> only $60 million budget 3) New project prioritization process 4) Goals of process ==> make trade-offs explicit and link projects to core business process they impacted

Organizational entities involved in setting priorities at VWoA

1) ELT ==> primary responsibility for executing NRG program - included IT governance processes 2) IT Steering Committee (ITSC) ==> composed of senior business and IT people - guide and approve process of IT project selection and prioritization 3) PMO ==> administer IT project-proposal and approval process

Choosing the right projects to find

1) High-level business architecture must be adapted to implement the strategy change 2) Business architecture ==> called blueprints, includes: - Goals ==> hierarchical and prioritized major goals across enterprise - Organization ==> org model mapped to functions - Business Processes ==> function model displayed all major activities - Information ==> enterprise-wide info inventory -- systems inventory mapped to major functions of enterprise

Background of VWoA

1) Himalayan mountain graph ==> spikes in sales but quick downfall 2) New corporate diversification strategy - expand and introduce new models each year to reach more customers ==> increase in sales

IT at VWoA (1992)

1) Marketing and selling activities ==> funding priority 2) 1992 - 10 year outsourcing contract with Perot Systems - reduced internal staff to < 10, eliminating much IT knowledge within company

IT at VWoA (2002)

1) New "IT" business unit needed at VWoA - need single point of governance for all IT issues - act as point of contact - 3rd attempt to create internal IT dept in last decade 2) Matulovic moved from VWAG HQs (Germany) ==> US - to design, establish and lead to IT org - no IT background - had been leader of process development at VWAG - believed major issues not related to IT, but ambiguity of IT governance and development process

IT at VWoA (2002) cont'd

1) New group called BPTO ==> Business process, technology, and organization - 23 people 2) Within BPTO ==> PMO (project management office) takes over management of all IT projects - all projects required to have project manager and to follow project management standards 3) Focus of PMO - to require more planning prior to project execution phase - require weekly project status reports and monthly budget reviews - gradually on-schedule and on-budget projects became the norm 4) Then Matulovic turns focus to: - are we doing the right projects?

Aftermath

1) No special exceptions ==> stood by results of process 2) Supply Flow project ==> funded by corp. funds

IT at VWoA (1999-2002)

1) Rebuild IT environment to support rapidly growing VW and Audi brands 2) But IT function not performing optimally within VWoA - no single entity in control of overall process - IT expenses on the rise - IT projects plagued with cost overruns

Relationship between Strategy, Business architecture, and Performance

1) Strategy change - global strategic changes impact VWoA - product diversification 2) Business architecture change - to implement the strategic change, the business architecture must be adapted 3) Performance change - the appropriate changes to the business architecture enables the desired performance change

Blueprint meaning

Means of categorizing org'l activity including IT projects ==> relating them to company's strategy

What is NRG?

Next Round Growth - organizational readiness program for new strategy ==> key leadership focus - NRG goal areas to support expanded product portfolio 1) Customer loyalty 2) New vehicle value 3) Stable business infrastructure 4) Pre-owned vehicle business 5) Optimize supply flow

Project prioritization and approval process - Phase 1

Phase 1: call for projects, communicate process, identify dependencies 1) PMO administers IT project proposals and approval process 2) Each business and technology proposal mapped against business architecture - identify business function affected - identify major goal project would address 3) Puts them into buckets to categorize project functionality

Project prioritization and approval process - Phase 2

Phase 2: formal project requests from Business Units 1) BU develop project proposals 2) Projects categorized and influence how proposals are prioritized - type of investment (SIB, ROI, OCI) - type of technological application involved (Enterprise IT platform, Enterprise app, Customized point solution) 3) Each BU leader ranks proposals 4) BU leaders assumed they would at a minimum get approval for their top-ranked projects 5) Each BU leader was an ELT member

Project prioritization and approval process - Phase 3

Phase 3: transforming BU requests into enterprise goal portfolios 1) 2 day retreat - current year project focus, defer some projects, move some to enterprise projects - reprioritize 2004 projects by BU - BUs rank top 3 projects - group exercise to align with 5 NRG goals (discussion) - decide how to allocate $60 million ==> $14 M for highest priority BU projects - DECISION ==> fund by goal portfolio order

NRG business goals

Ranked high-level business goals central to NRG program 1) Customer loyalty 2) New vehicle value 3) Stable business infrastructure 4) Pre-owned vehicle business 5) Optimize supply flow

VWoA Core Processes and Major Organizational Functions

VWoA organized around core business processes - Sales and marketing - Logistics of vehicle distribution - After-sales service Separated VW and Audi market - devoted org'l functions to each