VW America Case:
1. What is your assessment of the new process for managing priorities at Volkswagen of America? Are the criticisms justified? Is it an improvement over the old process?
Beginning with Pischetsrieder’s arrival in 2001, VWAG initiated an unprecedented product-diversification rebirth, globally as well as in the US. A consequence of this strategy required a comprehensive business realignment within VWoA called the “Next Round of Growth” (NRG). NRG clarified two high-level strategic business goals, “Build Brand Customer Loyalty” (number one) and “Improve Vehicle Value” (number two).
Somewhere, during this course, I read “the primary function of IT is to support the business’s strategic goals and objectives.” With the newly defined goals within NRG, we see that Dr. Matulovic is doing just that. He is instituting a long overdue process of prioritizing IT projects which are aligned to the goals and objectives of the company. Today we say that this is a basic business fundamental but we need to keep in mind of the timeframe that this is occurring; the 1990s through the early 2000s. In this study we are seeing a company not only undertaking a major product line transition but a company in transition during the emergence of IT technologies. Through all of this and its history I see that VWoA is finally getting it right; aligning their IT priorities with their business goals.
As with any new process, criticism and resistance will always be within an organization. Human nature fears the unknown. To ease their fear and resistance, management needs to plan for and quickly address why and when these new processes will be implemented and how they will benefit them and the companies goal’s.
I believe a limited amount of constructive conflict is advantageous. It gets people talking. It educates them and creates awareness of other perspectives.
Decision making processes that incorporate some degree of flexibility can be very beneficial to an organization. A structure that keeps a good balance between formal and informal practices by not defining all rules can promote constructive conflict and allow for the development of appropriate solutions for unique issues.
The New IT Priorities Process: * The Executive Leadership Team had primary responsibility for executing the NRG program. * An IT steering committee (ITSC) was composed of senior business and IT representatives. They 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. * The Digital Business Council (DBC), composed of representatives from the eBusiness teams within each business unit, would categorize projects, assess their business impact, discerning their alignment with goals, and making trade-off decisions.

Strategic decision making processes should be aligned with a company’s value disciplines. Generally speaking, firms engaged in operational excellence tend to make decisions from more of a top-down perspective while firms demonstrating a product leadership or customer intimacy focus tend to use more of a bottom-up approach. No matter which approach is implemented, it is important to ensure that there is an efficient exchange of data among all levels and departments. Just as executive management can effectively create strategic goals and a vision for the firm, the IT department’s efforts can also drive strategic goals. It is important to evaluate an organization’s business processes and value disciplines to identify the approach that is most effective. In some cases, a hybrid approach that combines a top-down and bottom-up decision making process can be an effective strategy to facilitate firm wide buy-in.
2. Given the IT governance styles described in the week 2a ITMF docs, identify the governance styles in use at VW America for both the "old" and "new" prioritization processes.
The old IT prioritization process was closely adhering to the standard Application Silo Architecture governance style. Over the years of decline at VWoA, differing departments added incompatible software and systems making it nearly impossible for departments within VWoA to communicate to each other let alone share data. Their limited IT budgets were being spent on patching holes and putting out fires in individual departments without regard as to the effect to the company as a whole. These systems are not only difficult to maintain but are very expensive to operate. This must be one of the reasons the costs soared while under contract with Perot Systems.
VWoA’s IT governance competency, while increased, seems at best at the 3rd stage: The Rationalized Data Style. The new governance is now more closely aligned with many traits of this style. VWoA’s ELT and IT leadership have now defined a clear set of company goals and has mapped out an IT process to support those two core goals. VWoA has “put a stake in the ground with regard to defining the business”. Their new process will enable VWoA to better accept a comprehensive ERP system that will allow them to effectively communicate and innovate in a competitive marketplace.
3. Who controls the budgets from which IT projects are funded at Volkswagen of America?
The overall IT budget was controlled and capped at $60 million by VWAG in Germany but Dr. Matulovic was responsible for the IT budget at VWoA which meant he technically had the final say in what projects were approved or denied funding. He could also make exceptions to the budget but as we have learned, the new NRG process effectively took this control from him and placed it with “several organizational entities”, (p. 5) that review project proposals before final approval – for example, during Phase I the DBC (Digital Business Council) reduced the initial $210 million project proposals to $170 million (p. 6). Ultimately the PMO (Project Management Office) subsection of the BPTO (Business Process, Technology and Organization), which Matulovic established as a new internal IT department upon his arrival, approves projects prioritized by the IT steering committee (ITSC).
Who should control these budgets? Should the IT department have its own budget?
To be honest, I do not have a problem with the NRG budget process as it’s handled now. I think it was long overdue to marry IT spend with corporate goals but Dr. Matulovic is there for a reason—he has firsthand knowledge of the local situation. I would permit him with the discretion to amend or veto any of the chosen projects. With this in mind, I also would allocate an IT specific budget that is separate from the VWoA IT budget in order to eliminate the guise of IT misappropriation coming from a single business-wide IT budget.
4. I'll argue that there's an especially big demand for IT services at the time of the case. What’s generating all of the extra requests for IT products and services? Are there factors in the history or plans of this firm that lead to excess demand for IT services?
During the 1990s decisions were made to withhold IT investment to support market incentives. By the early 2000s, VWoA’s IT system still contained many legacy IT systems which were built for a “traditional hierarchical organization” which itself is a defragmented and decentralized process, thus driving IT service demands from multiple departments. Not only were the systems deficient, the lack of a knowledgeable and well-staffed IT department compounded the issue—it was now time to face the consequences of past decisions. At this same time, new demands were arising from the goals of NRG itself, changes in the use of internet sales and customer communication technologies were increasingly pressuring VWoA’s IT department to “catch up”.
These issues are highlighting the need for greater business and IT alignment (ERP) moving forward. VWoA’s IT must move from its current state of a silo’d organization to a “One IT One Company” model.
5. What problems arise from over commitment of resources?
Due to long running IT outsourcing and cuts in staffing at VWoA, the IT personnel that is left, especially those who have the key skills and tribal knowledge, usually are already working at unsustainable levels and have little or no time to devote to other projects. But new projects always come along demanding immediate attention thereby causing a downward spiral as no project gets complete attention to fulfillment.
6. How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system?
I liked what Dr. Matulovic stated at the end of the article (p. 9). “Setting priorities is one of the hardest things managers do. You try to involve everyone in the process and make it transparent, so that everyone owns the outcomes. But there is always room to second-guess the process.”
I personally would take a few extra steps with regards to my peers on the ELT by individually discussing their concerns with them and show openness to their point of view. I would remind them that we should be committed to giving the new process a chance to work and any ideas as to improve the process going forward should be discussed by the ELT during the next NRG process round. But if Dr. Matulovic truly felt or discovered a major flaw with the new process, an immediate meeting of the ELT should be called and the process modified in order to achieve the NRG goals. Also, for the next round, I would have compiled a list of issues or recommendations from the initial process run in order to fine tune the process.
7. What should Matulovic do about the unfunded Supply Flow project?
As Dr. Matulovic has discovered, the new NRG process does not handle projects that are outside VWoA’s NRG goals, such as the Supply Flow project. This project and all global VW projects, regardless as to how important to the overall success of the company, will not receive funding. As just stated, this is a global VW project and should be handled as such. After providing proper background and justification, I would push back onto VWAG to have the project funded directly from Germany.