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IS430 Group Project Blog
Project Milestones / Due Dates
- 10/1 - Volunteers need for Drafter, Reviewer and Poster
- 10/1 - Vote for team meeting preference
- 10/3 - Submit all personal feedback
- 10/4 - Draft paper
- 10/5 - Final review
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Introduction
In the early 2000’s, Volkswagen AG (VWAG) was looking to diversify their product offerings globally. Volkswagen of America (VWoA) saw that there was an U.S. implication of the parent company’s diversification strategy. As a result, a new initiative, to handle the growth in product offering was instituted by the CEO of VWoA, Gerd Klauss. The new initiative was called “Next Round of Growth” (NRG). The new initiative would drive many changes in the VWoA organization. During that same time, the IT department at VWoA was going through a rebuilding of their environment with their separate IT teams – gedasUSA, Perot Systems, and the VWoA eBusiness. A new business unit was created to govern all IT issues called Business process, Technology and Organization (BPTO).
Matulovic moved from Germany to the United States to establish this new organization. The new organization created a new high-level business architecture (BA). This new business architecture would be important to a new prioritization and governance process. The new process proved to be a disappointment to many members of the Executive Leadership Team (ELT) as many of their projects would not be funded in 2004 due to this new prioritization process.
Assessment of new process for managing IT priorities
Prior to this process change, the prioritization process was very random. “The ELT had endorsed the idea of improving upon the old way that these decisions were made, via unstructured debate among executive sponsors.” (Volkswagen of America, p.1) In addition, VWoA was operating as individual business units instead of with an enterprise wide perspective in regards to their IT objectives. The new process allowed for a horizontal view of the company as opposed to a vertical perspective. This new “blueprint” was expected to play an important role in formalizing governance and prioritization processes because it provided a means of categorizing organizational activity (including IT projects) and relating them in a logical way to the company’s strategy and ability to execute strategy. (Volkswagen of America, p.5) This process prioritized projects using the newly created business architecture and how project goals were aligned with the three established goals set by the company: Stay in business, Return on Investment (ROI), and Option-creating Investment (OCI) as well as the three different technological application types: Base enterprise IT platform, Enterprise applications and customer point solutions. IT initiatives that did not provide results on a company-wide level or were a duplication of other IT projects in other business units were identified and removed from the 2004 proposal list. Similar projects were grouped together and addressed at a higher level. "Initiatives that had been grouped in Phase I as having significant synergies were again called out as potential enterprise projects." (Volkswagen of America, p.7) The process allowed several organizational entities to play a role in creating and managing a new process for managing priorities at VWoA and forced the company to operate with an enterprise wide philosophy. In addition, 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. Even though the VWoA’s process was carefully thought out and executed, there were difficulties encountered. First of all, 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 and a 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 within the parent company VWAG. The business unit leaders were also ELT members who knew the process. Therefore, they could assign projects in a way that would give their projects a higher priority. "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." (Volkswagen of America, p.7) In addition, a 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.
The establishment of a process to submit projects for approval, funding and prioritization through a formalized, standard methodology was a significant improvement over the old prioritization process. In the end 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.
Budgets at Volkswagen of America
The budget for VWoA was controlled by the parent company, VWAG. “A budget of $60 million (an amount capped by VWAG, the parent company of VWoA) made some degree of disappointment inevitable.” (Volkswagen of America, p.1) However, the budget should have been controlled by the ELT with input from the CIO at VWoA. The ELT, working with the business units, should have been able to determine the funding needs of the VWoA from an enterprise level. Therefore, the ELT’s responsibility is to act in the company’s best interest and provide funding to projects that support the company’s vision. This is what occurred. Knowing that there would be a growth in product offering and a volume of sales and service, the CEO of VWoA, Gerd Klauss, created an organizational readiness program called “Next Round of Growth” (NRG). This program was to be the key leadership focus. “Klauss intuitively understood that some of the things that the company was currently engaged in must stop, some new things must start and other existing activities must be enhanced.” (Volkswagen of America, p.3) Enterprise initiatives like the NRG program should drive IT projects. The IT department does not drive projects. Projects are not just about IT but may involve all facets of an organization and should be treated as such. Allowing IT to have its own budget would result in the IT group determining and driving business strategy and design decisions. Business strategy and design decisions should be made by the ELT. Therefore, IT should have a budget of its own. Instead, IT departments should be run as a separate business within the company and selling their services to the different business units. This results in the IT department being profit oriented areas as opposed to a cost center. This methodology will reinforce the company to align their project with their goals and reduce costs down on projects to produce a higher return on their investment. The shared overhead cost of IT would be incorporated in projects and shared among the different business units.
Matulovic and his fellow executives
At the end of the prioritization process, Matulovic receive many calls from ELT members asking that their unfunded project be inserted into the IT department’s work plans. They were concerned that their high priority projects were not funded in the new prioritization process. (Volkswagen of America, p.1) Even though the prioritization process was flawed, no special treatment should be given to ELT members by Matulovic. In the end, funding was recommended and approved by the IT Steering Committee. "In keeping with the ranking of the NRG goals, the DBC recommended funding business unit projects in order of goal portfolios (funding all projects in the top-ranked portfolio, then moving to the portfolio with the next highest rank, etc.). The recommendation was approved by the ITSC." (Volkswagen of America, p.8)
Improvements for the next year’s prioritization process can include the following: An appeals process that will allow projects to have an avenue for appealing decisions to the ETL and be able to present business case and justifications for including project and receiving funding; An escalation point and process to resolve decisions that cannot be agreed upon by ETL or has a scope greater than the ETL typically addresses. In addition, it seems that the overall budget is not sufficient enough to address the needs of priority projects within the organization. This should be reviewed, assessed and escalated to the parent company, which set the budgetary constraints. Any special consideration given to ELT members would undermine the integrity of the prioritization process and the process would eventually collapse.
Supply Flow Project
Flaws in the new prioritization process left the critical global Supply Flow project partially funded. In order to ensure that the project is funded for the next year, the funding needs should be escalated to the ELT. A strong business case for this project can be easily made. Since this project is critical to the global initiatives of VWAG, it should not be bound by the same budgetary constraints as with smaller projects. Matulovic should focus on the reasons why this project be implemented within the existing timeframe and budget. The risks of not completing the project and the cost of extending the project in the fiscal year should be documented. The overall requirements to complete the project should also be documented. Also because this project impacted Volkswagen globally and not just the VWoA, the funding could be procured form the parent company VWAG. This would in effect not undermine the process they have been trying to implement and it eliminates any thoughts that certain project can receive special treatment. As a last resort if alternative funding is not available for the project, funding can be taken from other funded projects.
Conclusion
The prioritization process along with the new business architecture provided many improvements to the unstructured prioritization process of past years. However, there were many flaws in the process that caused a list of projects to not be funded and resulted in unhappy senior management. And at the same time business units executives had the choice to acknowledge projects from other areas might be more important to achieving enterprise goals or they could challenge the merit of the new methodology. As Matulovic had discovered not everyone was choosing option one (Volkswagen of America, p. 8) With improvements over the next year to the process, VWoA will be able to be prepared for their NRG program.
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