Volkswagen of America: Managing IT Priorities
Summary by Bonnie
The CIO was hearing a lot about a new prioritization process- a list of IT projects that would be funded in 2004. He heard from many executives that had expressed concern that high priorities for their areas of the company had not been funded. There were 10 business units that proposed more than 40 projects, $210 million worth, with only a budget of $60 million. A new process was tried, which made trade-offs explicit and link projects and the core business processes they impacted with VwoA corporate goals. Questions were raised about whether the new process was right for VwoA. Matulovic had to decide whether he should order exceptions to the process.
Information technology was considered a source of overhead to be kept at subsistence levels for that all available funds could be used in the market. In 2002, GedasUSA undertook development project work for VW, using a formal contracting process. All of VW 28 employees transferred to gedasUSA, all IT knowledge transferred out of VW. Between 1999 and 2002 the IT function was not performing optimally within VW. Responsibility for managing IT was shared among multiple providers with no single organizational entity in control of the overall process. IT projects seemed to be plagued with schedule and cost overruns. In 2002, a new business unit was formed that governed all IT issues. This was the third attempt to create such a function in the past decade and Matulovic was the lead. Matulovic empowered a Program Management Office to take over management of all IT projects and required all projects to have a qualified project manager and to abide by project management standards.
Choosing the Right Projects to Fund
They created high-level business architecture. An IT steering committee composed of senior business and IT representatives would guide and approve the process of IT project selection and prioritization. A three phase plan was created – Phase I – Calling for projects, communicating process, and identifying dependencies – which made some business units realize that some projects could not be started until other projects were completed, therefore they were moved to a different year. Phase II – Formal Project requests from business units – proposals were submitted with detailed information such as name, changes it would cause, a financial model, improvements, enterprise goal that the project would advance, type of investment (stay in business, return on investment, option-creating investment) and technological application (base-enterprise IT platform, enterprise applications, customized point solutions). Phase III – Transforming business unit requests in enterprise goal portfolios – The group would then agree that each business unit would identify the three most important projects still on the 2004 list.
After a two-day meeting, they speculated about the budget. 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 Matulovic, another $30 million would fund enterprise projects, which left about $14 million for the highest-priority business unit projects. Therefore, decisions had to be made based on the following:
Should they drop the lowest ranked goal portfolio in its entirety?
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 NRG?
Several of the projects favored by the business units did not have sufficient enterprise value to make the funding cut. This is when some of the executives of the business units were challenging the merit of the new methodology for selecting and prioritizing projects.
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.)
This decision left a project critical to the company’s global supply chain management objectives only partially funded. The multiyear SAP implementation, midway, finished, needed VW full funding to stay on track. But it was a large project that would have wiped out a significant portion of the IT budget for 2004. It did not get funded, as its value would be recognized at the global level of the organization, not at the VW importer level. Although it promised savings, the big impact was global integration, which was sometimes a tough sell locally. This project demonstrates that the new process poorly served it. The difficulty was one of strategy implementation. 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. There was little IT investment in the 1990s that created a need in the early 2000s for substantial IT investment. This caused Matulovic’s peers to view IT as an expensive item that usually fell short of what they needed from it. One thing that Matulovic would like to turn around is the idea that IT is an obstacle.
Summary by Bonnie
The CIO was hearing a lot about a new prioritization process- a list of IT projects that would be funded in 2004. He heard from many executives that had expressed concern that high priorities for their areas of the company had not been funded. There were 10 business units that proposed more than 40 projects, $210 million worth, with only a budget of $60 million. A new process was tried, which made trade-offs explicit and link projects and the core business processes they impacted with VwoA corporate goals. Questions were raised about whether the new process was right for VwoA. Matulovic had to decide whether he should order exceptions to the process.
Information technology was considered a source of overhead to be kept at subsistence levels for that all available funds could be used in the market. In 2002, GedasUSA undertook development project work for VW, using a formal contracting process. All of VW 28 employees transferred to gedasUSA, all IT knowledge transferred out of VW. Between 1999 and 2002 the IT function was not performing optimally within VW. Responsibility for managing IT was shared among multiple providers with no single organizational entity in control of the overall process. IT projects seemed to be plagued with schedule and cost overruns. In 2002, a new business unit was formed that governed all IT issues. This was the third attempt to create such a function in the past decade and Matulovic was the lead. Matulovic empowered a Program Management Office to take over management of all IT projects and required all projects to have a qualified project manager and to abide by project management standards.
Choosing the Right Projects to Fund
They created high-level business architecture. An IT steering committee composed of senior business and IT representatives would guide and approve the process of IT project selection and prioritization. A three phase plan was created – Phase I – Calling for projects, communicating process, and identifying dependencies – which made some business units realize that some projects could not be started until other projects were completed, therefore they were moved to a different year. Phase II – Formal Project requests from business units – proposals were submitted with detailed information such as name, changes it would cause, a financial model, improvements, enterprise goal that the project would advance, type of investment (stay in business, return on investment, option-creating investment) and technological application (base-enterprise IT platform, enterprise applications, customized point solutions). Phase III – Transforming business unit requests in enterprise goal portfolios – The group would then agree that each business unit would identify the three most important projects still on the 2004 list.
After a two-day meeting, they speculated about the budget. 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 Matulovic, another $30 million would fund enterprise projects, which left about $14 million for the highest-priority business unit projects. Therefore, decisions had to be made based on the following:
Should they drop the lowest ranked goal portfolio in its entirety?
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 NRG?
Several of the projects favored by the business units did not have sufficient enterprise value to make the funding cut. This is when some of the executives of the business units were challenging the merit of the new methodology for selecting and prioritizing projects.
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.)
This decision left a project critical to the company’s global supply chain management objectives only partially funded. The multiyear SAP implementation, midway, finished, needed VW full funding to stay on track. But it was a large project that would have wiped out a significant portion of the IT budget for 2004. It did not get funded, as its value would be recognized at the global level of the organization, not at the VW importer level. Although it promised savings, the big impact was global integration, which was sometimes a tough sell locally. This project demonstrates that the new process poorly served it. The difficulty was one of strategy implementation. 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. There was little IT investment in the 1990s that created a need in the early 2000s for substantial IT investment. This caused Matulovic’s peers to view IT as an expensive item that usually fell short of what they needed from it. One thing that Matulovic would like to turn around is the idea that IT is an obstacle.