VOLKSWAGEN OF AMERICA: MANAGING IT PRIORITIES
Case Assignment #1
1. What is your assessment of the new process for managing IT priorities at Volkswagen of America? Are the criticisms justified? Is it an improvement over the old process?
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The new process in order managed IT priorities is very organized. At a glance it looks all encompassing and it does
select projects based on the business requirements/scope.
The process allows several organizational entities to play a role in creating and managing a new process for managing priorities at VWoA. The entire process was divided into three phases.
The first phase called for projects, communication process and Identified Dependencies. In the second phase Formal Project Request from Business Units. During this state three different investment types were recognized: Stay in business; Return on investment (ROI)
and Option-creating investment (OCI). Three different technological application types were recognized: Base enterprise IT platform, Enterprise applications,
and customer point solutions. Once all proposals were prepared they were ranked the by leadership. Stage three transformed the business unit requests into enterprise Goal portfolios.
VWoA's process is carefully thought out and executed, but still encountered difficulties.
The case deals with Enterprise Architecture and issues of innovation, demonstrating the details and difficulties
of setting priorities for use of a scarce organizational resource.
However some disadvantages to the way the projects are priorities is to do to the facts that unfinished projects
are left unfinished. Localizations is not looked at for the projects. Manager accountability is not addressed.
This is a an improvement over the old process as it takes
many more factors into consideration before allocating funds to the projects.
The new process for managing IT priorities implemented by the VWoA failed. This is apparent for many reasons. First of all, the process left a project that was critical to the global supply management objective, Supply Flow, partially funded. However, the project required full funding to stay on track. This project was important on a global level. Secondly, there was not enough in the budget to accomplish the top three business unit projects. In addition, at the end of the process, the DBC team realized that the way they prioritized projects was not as simple a process as they believed. This left many of the business unit managers very unhappy with the prioritization process. As a result, they challenged the process. Finally, the budget was not sufficient to fund all of the projects. In the end, the top-rank projects were funded but not without controversy.
The criticisms of the new process were justified. The process was flawed in many ways.
One source of the problem may be from the head of BPTO department, Matulovic. He did not have an information technologist background. His background was in process development. Matulovic implemented very important changes to improve project management. He implemented the Program Management Office (PMO) to take over the management of IT projects and introduced project management standards. The results were great and projects were being implemented on time and on budget. This was necessary since the IT department had some organizational problems. The IT department was isolated from other business units and was not in tune with the objectives of VWoA. There was no indication that the old process of prioritizing and approving projects was flawed. Matulovic’s expertise in process development may have influence his decision to tackle the project approval process even though the process was not broken. The focus should have been on aligning business and IT goals.
Another problem with the new IT prioritization project was the process itself. The process involved three phases which at times seemed very unclear. The first phase involved sharing company initiatives with the DBC and having business units present their initiatives. It was good that the company initiatives were shared with members of the DBC. Many projects were removed based on the fact that they could not be done in the next plan year. However, it is not apparent that the global initiatives were not made clear to DBC. This would have been important to understanding the importance of the Supply Flow project.
The second phase involved business units created their formal project proposal. The project proposal did not include any real business case for why the project should be done. These proposals were categorized and ranked. The proposals were categorized by the investment type and technological application type. There was no control on how the requests were categorized. The business unit leaders were also ELT members who knew the process. So, they could assign projects in a way that would give their projects a higher priority. The last phase seemed to fall apart at the end when the corporate strategy and PMO regrouped the top picks. The accuracy of the project-to-goal associations was questioned. In the end, a decision was made but not without controversy. In the end, there was not enough in the budget to fund even the high priority projects.
I am in favor of the new process Volkswagen implemented for managing IT priorities. I believe that prior to this new process Volkswagen was operating as individual independent business units instead of with an enterprise wide perspective in regards to IT initiatives. The business units were more concerned to what was good for them as opposed to what was good for the company as a whole. Likewise, the business units leaders may not have had the insight to determine what IT projects were best implemented for the good of the company as a whole even though there would be no benefit for their own particular business unit. By establishing the Executive Leadership Team, whose high ranking members gave a horizontal view of the company as opposed to a vertical perspective, the ELT was able to prioritize those projects that supported the enterprise wide strategy.
The establishment of the process to submit projects for approval and funding through a formalized, standard methodology was a significant improvement. Funding would be prioritized on the business objective of the IT initiative and how that goal aligned with the three established goals set by the company: Stay in business, Return on Investment, and Option-creating investment. This new process forced the company to operate as an enterprise wide philosophy. It identified IT initiatives that did not provide results to the company wide level and also identified duplication of IT projects between business units. The establishment of the governance team ensured that all business units would follow the same procedures when submitting projects. It also forced the business units to perform a more in depth analysis when submitting for projects as each business unit would in essence be competing for budget dollars. The unit whose project would have the greater return for the company and was more in alignment with the company’s goals would receive funding. This allowed the governance team to better utilize the funding for IT projects.
I think that the criticisms of the new process are not justified. First of all, the company cynicism to IT as being a necessary evil or cost is not correct. The cost for IT projects should be view as an investment that will return a profit. Just like any other investment, much care should be given to what projects should be invested into and should adhere to matrixes’ that evaluate such financial decisions. Likewise, the IT area should conduct their existence as if the business units were going to an outside firm for IT support. When using an outside party, much more scrutiny and analysis is involved to make sure that the best return on their investment is guaranteed and it also makes sure that frivolous cost or unnecessary request are removed from the business requirements so that costs are kept down as much as possible. By adapting to this philosophy the IT does not just represent a cost center but a profit center in that it will return a profit on the investment of the business units.
One of the failing points of the current process is the company and ELT board has a very narrow view - "Which projects can be implement this year with X dollars". The correct view should be a more roadmap approach, which takes into consideration the company's overall goals and business objectives. Costs and returns on investments typically are not seen within the same year and this needs to be considered when reviewing projects. The ELT has the responsibility to UNDERSTAND the objectives and strategy of the organization and implement projects that support these overall company goals.
Overall, I think moving to a more structured, enterprise funding view is a good move for VW. Prior to this process change, it would be very difficult to understand what porjects were in process, where money was being spent and what the company had planned over the next few years.
As I said in another post, the process still needs modified to include an appeals process and escalation point.
One criticism:
Existing projects should have been considered based on criticality to the organization. If the company has already invested a significant chunk of money into a project and project is deemed critical / high priority, funds should be made available. If there is no budget left AFTER critical / existing projects have been addressed, issue should be escalated to a higher authority (Parent company).
Interesting note - after all projects that were not feasible to complete in 2004 were removed (due to project dependencies) - what budget would be required? What budget would be required for critical projects? Stepping back and keeping an enterprise view will ensure the success of the overall program.
Business case should be included for all project proposals. It is imperative to understand the overall business case (ROI, Time to implement, impacts to organization) when determining project budget allocation. Prioritizing projects does not give the same view and is subjective based on individual motives.
Facts:
"Of the roughly $60 million available overall, $16 million had been set aside to fund “stay in
business” initiatives, most of them infrastructure projects under the discretion of CIO Matulovic;
another $30 million would fund enterprise projects, which left about $14 million for the highest priority business unit projects."
"Most would
agree that strategy should drive IT operations, but legacy IT architecture and financial constraints
imposed limits on what could be done to enact strategy. Business decisions about IT deployment
made in the 1990s, when the company was in survival mode, created a need in the early 2000s for
substantial IT investment."
Criticisms quotes:
"The
leader of each business unit was an ELT member and thus realized that assigning projects to NRG
goals implicitly ranked them in their importance to VWoA. By associating a project with an
enterprise goal, they knew they were strengthening or weakening the enterprise-level case for the
project. There was a temptation to think of ways to associate projects considered important with a
goal important to the company to improve chances of funding."
"Discussion about the accuracy of the project-togoal
associations proposed by individual business units in their proposal documents. Several projects
that had been associated with the most critical NRG goals were reclassified" - Motivations of project managers to get funding on project that may not have been in line with overall strategy
"They could
acknowledge that projects from other areas might be more important to achieving enterprise goals,
that the projects they had advocated were not, upon further examination, as important" - This IS THE GOAL of the ELT. Some projects are NOT as important and budget should not be divided by business unit.
Strength quotes:
"Initiatives that had been grouped in Phase I as having significant synergies were again called out
as potential enterprise projects." - Similar projects were GROUPED together and addressed at a higher level
"Prior to the
meeting, the corporate strategy and PMO teams used the dependencies and enterprise project
groupings from Phase I to create a high-level schedule of all projects. Because many projects
depended upon others completing (or starting), many of the 2004 proposed projects clearly could not
be started until 2005 or later. Also, some business unit project proposals were officially combined to form enterprise project proposals." - Timeline of projects, including understanding project dependencies.
"The group agreed that each business unit would identify the three most important projects still on the 2004 list" - Identify and prioritize critical projects
Potential decision points:
Should they drop the lowest-ranked goal portfolio in its entirety? (If they did this, several business units would gain approval for no IT projects for 2004.)
• Should they apply an equal percentage of funds to each goal portfolio?
• Should they cut apart each portfolio and fund more projects associated with the most critical
goals and fewer projects associated with the less important goals?
• Should they recommend that the importance of business unit priorities be revisited relative to
the enterprise priorities from the NRG (perhaps reallocating some enterprise funds to business unit projects)?
- Do not think an equal percentage approach is feasible. Think reallocating some enterprise funds is a possibility. Also agree with funding most critical projects based on business case.
The process they implemented was a good one from a global perspective. It allowed the company to see which projects were similar and which they could fund globally which in turn should save money on resources and time, also allowing them to become more standardized as a result of adopting the same application or system. The process failed in respects to actually making the best projects with highest merit getting approved because most of the people involved were trying to get their own projects passed so they would not withdrawal their projects for the sake of a more important one.
The teams could not agree on the projects that should be funded or the funding itself. And with one of the most important projects not getting enough funding this process needed to be revamped.
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