How VW returned to high-performance IT

It took a crisis for Volkswagen of America to learn that strong governance is the only way to keep IT aligned with the automaker's primary goal of selling more cars than the competition.

The year was 1999. IT costs were skyrocketing with an outside outsourcer, so VWoA cut short its 10-year contract in favor of strategically insourcing IT to Gedas AG, an IT services provider then wholly owned by German parent company Volkswagen AG.

"At that point, there was a thought that we had no need for governance because Gedas was part of the VW organization," recalls Allen Piercy, chief technology officer and general manager of IT infrastructure architecture and operations governance.

But it wasn't long before costs again began to climb. Different departments had added new and incompatible software and functionality on an ad hoc basis over several years. These applications had to be integrated via a complex set of homegrown software interfaces, all of which worked to erode system stability over time. As a result, routine tasks such as calculating automobile sales at month's end became major IT productions fraught with delays and expense. Even worse were highly visible, IT-enabled business blunders, like failing to accurately forecast and match the right car models to the right markets. "We woke up with a monster of an IT infrastructure," Piercy recalls.

VWoA officials knew that what was sorely lacking was clear alignment between IT and the business, but change came slowly until Andreas Hestermeyer was hired as CIO in 2004. His mission: to accelerate an IT transformation. Two years later, business and IT at VWoA are virtually indistinguishable, performing a single set of activities for manufacturing, selling and servicing cars.

The first step was stabilizing the IT infrastructure, which meant taking what Piercy calls "a much more hands-on role in setting technology standards and designing the operational IT infrastructure."

Piercy assigned each member of his 10-person IT managerial team to one of four architectural "domains" focused on applications, data, infrastructure and services. "Now, everyone on my team has a part of the IT architecture," he says. "They're responsible for setting standards and making sure there is clear alignment with Germany." They also make sure that all new projects initiated in the U.S are implemented in a standard way.

Beginning in 2005, VWoA also began putting in place strict service standards. It adopted the Information Technology Infrastructure Library (ITIL) framework of best practices for the delivery of IT services from various outside providers, including Gedas (which is no longer owned by VW). ITIL outlines an extensive set of management procedures for achieving quality and value in IT operations. The procedures are supplier-independent and cover IT infrastructure, development and operations.

Then came the hard work of documenting the company's activities and mapping them to the technology and the information required to perform each one.

No prima donnas

There are no pure IT projects or traditional IT staffers at VWoA. Hands-on IT work, such as programming and testing software applications, is conducted almost entirely by outside contractors. What has stayed in-house are the far more strategic tasks of managing projects, working with business units to analyze business proc­esses and the information needed to perform them, and supporting the measurement of business performance. This is the work of the company's ultralean 33-person IT governance organization, which is headed by Hestermeyer.

All projects are prioritized quarterly by an IT steering committee composed of business, finance and IT representatives. The group uses a project portfolio management process, which takes into consideration long-term business goals and benefits, IT architectural standards and costs across the entire corporation, and opportunities that may come up as the business environment shifts.

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There are no prima donnas. A finance project may be put on hold or in queue behind a project for a new warranty services system or a parts-ordering application. Governance team members describe the result as a "healthy tension" among business unit leaders.

"We conduct an annual planning activity with representatives from every part of the business. We look at hundreds of projects and prioritize them," says Hestermeyer. "If you want to be in a room with a lot of tension, that's the place."

"No one likes to be told that their project is being slowed down" because another project is more critical to the company as a whole, says Troy McLean. He leads the business relationship management group, which acts as a liaison between IT and business. "No one likes to be governed, but they like the benefits that governance brings," he says.

Among those benefits is the ability to quickly innovate and respond to changing business conditions, says Lisa Dalmia, general manager of program and project management.

One example is Volkswagen's recently announced work with DaimlerChrysler AG on a new minivan for the North American market. Production of the Volkswagen minivan, which will be based on the next-generation Chrysler and Dodge minivans, will begin in less than two years -- a nanosecond in the auto industry.

As counterintuitive as it seems, rigorous and methodical project planning and prioritizing enable the company to switch gears quickly as new opportunities arise, says McLean. "When we do have to take quick action, this kind of planning and prioritization helps us quickly identify how taking the action will impact the rest of our project plans," he says.

Once a project is decided on, a project team is assembled that comprises a process manager, a project manager, a business relationship manager and a technical architect. The process manager works closely with business users to understand exactly what they need to do, analyzes the step-by-step tasks involved and recommends supporting technology. The business relationship manager acts as liaison between users and IT. The technical architect ensures that the project complies with overall VW technology and process standards. And the project manager, as the overall coordinator, keeps the project on schedule. These four disciplines are represented on every project team and, by design, can never accomplish anything on their own, Hestermeyer notes.

"This organization only works if the team works together," he emphasizes. "The business relationship manager, for example, can't accomplish anything on his own because processes can't work without interfaces to other processes, and those interfaces need to be in sync with our technical standards."

This is where the tensions can really set in, team members say. Not only does each representative need to balance his needs and requirements with those of his three counterparts, but all of them also have to weigh the value and consequences of what is expedient in the short term against what is in sync with long-term technology architecture standards.

"We have an emphasis on long-term perspective," says McLean. "But of course, that doesn't make immediate decisions any easier."

Still, the project process, as contentious as it may be at times, is paying off, says Hestermeyer. "Last year, with a multimillion-dollar project budget, we had less than 5 percent overspend."

That makes sense to Mark Lutchen, senior partner in the IT effectiveness practice at Pricewaterhouse­Coopers. "Governance is the glue that brings business and IT together," Lutchen says. "The ultimate objective of having a rule set is to have much a more efficient spend in IT and to make sure it counts."