COMPANY BACKGROUND

Volkswagen of America is the U.S. subsidiary of the Volkswagen automobile

company in Germany. Formed in April 1955 in Englewood Cliffs, New Jersey
to standardize dealership service in the United States, it grew to 909
Volkswagen dealers in the United States by 1965 under the leadership of Dr.
Carl Hahn. Under him and his successor as president of Volkswagen of
America, J. Stuart Perkins, VW's U.S. sales grew to 569,696 cars in 1970, an
all-time peak, when Volkswagen captured 7 percent of the U.S. car market
and had over a thousand U.S. dealerships. The Volkswagen Beetle was the
company's best seller in the United States by a wide margin.

Ferdinand Porsche designed the Volkswagen automobiles during the 1930 in

Germany. The original vehicles, targeted at the mass market. Were
intended to transport a family of five at highway speeds, use modest
amount of fuel, and remain within financial reach for most people. The
company’s signature platform by the late 1940s was the Beetle, which with
its rounded styling and reliable air-cooled engine, became internationally
popular. For about 20 years, sales of the Beetle hurtled skyward, propelling
the company’s total worldwide vehicle sales past a million in 1955 and to
high point in 1969. Although popularity of the Beetle declined throughout in
the 1970s and its importation was discontinued in the U.S late in that
decade, production of Beetles in Latin America continued in the U.S late in
that decade, production of Beetle in Latin America continued into the 1990s.
It remains the best selling car of all time.

After peeking in the late 1960s, the pattern of sales for the North American
subsidiary of Volkswagen settled into a trying cycle ups and downs that
became known, due to its jagged contours, as the “Himalayan Chart”. Sales
fell precipitously until the introduction of the Rabbits in 1977, then
recovered briefly before dropping sharply again. This time the introduction
of the Jetta prompted another short lived recovery, followed by several year
descents to a new low point in the early 1990s known informally within the
company as the “Valley of Despair”.

PROBLEM

1. How Volkswagen of America handle the schedule and cost overruns of

IT projects?

2. How does the Next Round Growth (NRG) program support the
business strategy that Volkswagen of America has?

3. How the Digital Business Council communicates to each of the

business unit the criteria used to approve a project so that there are no
misleading perceptions?
PROBLEM ANALYSIS

Managing IT

Between 1992 through 2002, turning the VW and Audi brands around in the
U.S. market were the main focus of the executives of Volkswagen of
America (VWoA). Marketing and selling activities were the funding priority.
At the time, Information technology was considered a source of overhead.
The executives minimize the expenses of its internal IT so that all available
funds could be used to run the company’s other important needs.

In 1992, VWoA entered into a 10-year agreement with Perot Systems, an IT

services provider, in order to reduce short-term IT costs. Perot’s
responsibilities are for the maintenance, repair, and operation of the IT
production environment.

In 1999, gedasUSA Inc, a new Volkswagen AG (VWAG) Group company was

created in the United States. The responsibilities of GedasUSA are for
administering the outsourcing contract with Perot Systems and would
assume responsibility for IT operations at the expiration of the Perot
contract in 2002. Also in this year, VWoA set up “eBusiness teams”. The
purpose of this team is to create digital marketing assets and interact with
customers in new ways.

During the five years from 1999 through 2002, to rebuild the IT environment
in order to support the now rapidly growing VW and Audi brands, gedasUSA,
Perot Systems, and the VWoA eBusiness teams worked together. From time
to time, it became increasingly clear that the IT function was not performing
optimally within VWoA. Responsibility for managing IT was shared among
multiple providers with no single organizational entity in control of the
overall process. Furthermore, the business units within VWoA were
increasingly concerned that IT expenses were on the rise and that IT
projects seemed to be plagued with schedule and cost overruns.

In 2002, the ELT decided that a new business unit was required within VWoA
that could become the single point of governance for all IT issues. That new
organization would consolidate the technical elements of the eBusiness
teams and act as a point of contact for gedasUSA, which would in turn act
as VWoA’s lead IT delivery partner. To accomplish this, Matulovic was
moved from VWAG headquarters in Wolfsburg, Germany to the United
States to design, establish, and then lead the new organization. At his
arrival, Matulovic set about creating a new internal IT department, called
Business Process, Technology and Organization (BPTO). Since the creation
of the new BPTO department, the IT projects gradually became on-schedule
and on-budget.
NRG Program

The sales of Volkswagen are highly fluctuating. Peaking in the late 1960s,
sales fell until the introduction of the Rabbit in 1977, then rose before
dropping sharply again. Then the introduction of the Jetta made the sales
rose but finally fell again. Some managers in VWoA seemed to had fallen
into an unhealthy habit of waiting for the next round of new models to
rescue them from present difficulties.

In the early 2000s, globally within VWAG, senior executives initiated a

strategy of diversifying the product offerings from VW Group companies.
They observed that the VW Group brands were overrepresented in small-car
and lower-priced segments. but during the previous five years, much of the
industry growth had been in midsized vehicles and emerging segments,
such as sport utility and special-purpose vehicles.

The VW Group chairman initiated a consolidation of the VW Group

automotive brands into two groups, each with different positioning
directions. The purpose of consolidating brands into groups was to force
some alignment among brands to help determine their requirements for
future models in new segments. The implication of the product-
diversification strategy being developed would have dramatic impact on the
U.S. and Canadian importer operations. If all models proposed were
ultimately approved and produced, VWoA would grow from importing nine
models in 2002 to over 22 models by 2008. In VWoA history, this sort of
growth in product offering was unprecedented.

VWoA’s CEO instituted an organizational readiness program called “Next

Round of Growth” (NRG) in order to prepare for the growth in product
offering and the associated sales and service volume, and made it the key
leadership focus. The aims of the NRG program were to define the goal,
function, and organizational changes required at VWoA to support and
enable the new global product diversification strategy.

Prioritization

VW changed the strategy. Global product diversification was implemented.

In order to implement the new corporate strategy, the company involved
every business unit. The company involved everyone in the process and
made it transparent, so that everyone owned the outcomes.

In creating and managing a new process, VWoA involved several

organizational entities that would play a role for managing priorities. The
ELT, had primary responsibility for executing the NRG program. IT steering
committee (ITSC), 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. And the
Digital Business Council (DBC), composed of representatives from the
eBusiness teams within each business unit, would do the difficult work—
categorizing projects, assessing their business impact, discerning their
alignment with goals, and making trade-off decisions—required to reach a
final list of projects for which funding was recommended.

CONCLUSION

1. Matulovic decision was right. In order to deal with schedule and cost
overruns, a new business unit was required within VWoA that become the
single point of governance for all IT issues. The new internal IT department,
BPTO, serves the purpose.

2. NRG support expanded product portfolio. It identifies five goal areas.

3. The company involved everyone in the process and made it

transparent, so that everyone owned the outcomes. When dealing with
budget, the company prioritizes to fund the first rank priority, and then
moved to the next rank priority.

SUGGESTION

1. Many of the ELT members had expressed concern that high priorities
for their areas of the company had not been funded. Some had repeated
views expressed during the prioritization process thought might be
categorization mistakes that penalized their business units. To handle the
problem, we recommend communicating with each of the ELT members that
the budget available doesn’t meet the total project cost if all projects are to
be implemented. The company should prioritize the priorities that are the
main focus of the company. If the company grows, then each of the
business unit grows too. But if one of the business units grows, the company
might not be growing. So the company’s growth is the main priority.

2. The company may communicates to the ELT members that each of

the business units will have the project funded if the company sees it needs
to be funded