VOLKSWAGEN OF AMERICA:

MANAGING IT PRIORITIES
Q) What is your assessment of the new process for managing priorities at Volkswagen of America?
Are the criticisms justified? Is it an improvement over the old process?

in an effort to increase revenue and tackle forecasted growth for the company, CEO Gerd Klauss had
instituted an organization readiness program called “Next Round of Growth” (NRG). Some of the key
functions of the program specifically for Volkswagen of America (VWoA) was to better regulate
product governance, IT projects and funding & prioritization process. In that respect, I believe that
VWoA had a done respectable job. In leveraging the NRG structure to create Enterprise goals, there
were consensus among business groups to align all business unit projects and combine them to form
enterprise project proposals that would cater exclusively to those goals.

What were the alternatives at VWoA and CIO Uwe Matulovic’s disposal in this regard? It was either
to do nothing and stick to the previous structure of project approval and funding process or
implement the NRG program to bring strategy groups into decision making process. If the NRG was
not facilitated, there would have always been dissatisfaction from current employees and managers
and key projects would never be funded and completed. On the other hand, with full implementation
of NRG process, needless to say, there would be efficient planning, alignment with enterprise goals
and transparency on decision-making within the organization. This was a decision that the Executive
Leadership Team (ELT) had agreed on in the first place, so their criticisms coming only after their
business units’ projects were not planned to be funded are unjustified.

To that end, however, I believe that the program still needs some refinement. The current problems
may lie with definitions and categorizations. I suggest that VWoA revisit all project-to-goal
associations. For instance, the Supply Flow Project does in fact tie in to the NRG Goal Areas but one
that is ranked the lowest (Rank 5: Optimize the Supply Flow) in terms of prioritization which perhaps
VWoA should rethink. Also, the current NRG does not consider the global level of projects in their
immediate list of prioritizations.

Q) Who controls the budgets from which IT projects are funded at Volkswagen of America? Who
should control these budgets? Should the IT department have its own budget?

The budget of $60 million was the amount capped by the parent company, VWAG and handed over
to VWoA. Although there are many entities and stakeholders managing the process for directing
priorities for budget allocation at VWoA, the CIO Matulovic and IT Steering Committee (ITSC) had the
final say in approving funding business unit projects in order of goal portfolios. The Program
Management Office (PMO) section of Business Process, Technology & Organization (BPTO) –
Matulovic’s new internal IT department – would administer the IT-project proposal and approval
process. In that respect, they also had a hand in controlling the budget allocation from which IT
projects are funded at VWoA.

In terms of leadership, ELT were owners of execution of the NRG program, of which the new IT
governance processes were a part. Although they directly contribute to what projects should be
proposed for funding from their business units, they cannot be considered for budget control as they

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 are in a way competing for funds. Thus, the ultimate decision should lie on the CIO and ITSC only,
who holds the better judgement in considering IT investments as a portfolio: transaction,
informational, strategic and infrastructure. But the decision needs to be vouched by CEO Gerd Klauss.

Under current conditions and with the NRG program in place, IT should not have its budget since all
resources should be optimally utilized to align with Enterprise goals. Allocating scarce IT budgets
across a portfolio of IT requests, should better align IT activities to corporate strategy. If any IT savvy
premium is to be endorsed, it should go through the same process of funneling and channeling
through the ITSC

Q) How should Matulovic respond to his fellow executives who are calling to ask him for special
treatment outside the new priority management system?

The CIO finds himself in a difficult spot here. Although he finds that corporate strategy is clear, its
implementation is not. Matulovic knows that he has to work with these executives as part of the ELT.
On the other hand, he should consider the relationship, but there does not seem to be any reasonable
basis for giving certain colleagues special treatment outside of the new priority management system
other than due diplomacy.

Even if the business units don’t like the outcome, they need to agree to stand by the results, as
initially decided. Budgeting is a zero-sum gain and it cannot please everyone. Perhaps the CIO
develops strategies for helping the business units who do not get funding to seek it from alternative
sources. In doing so, he also dismantles the idea of IT as an obstacle and helps to become a strategic
partner.

Q) What should Matulovic do about the unfunded Supply Flow project?

There is a definite failure in the system in addressing global projects and this should be a priority for
Matulovic to make a decision as CIO. The prioritization process used by the team should be reviewed
so that global benefit projects are more highly ranked.

Rather than a business unit project, the Supply Flow initiative seems better categorized in two ways:
1. As a stay-in business endeavor
2. As an enterprise application, ranking it higher in the prioritization process

Matulovic needs to exercise strong leadership, prioritizing company’s profit instead of department’s
profit. The next step to do is calling Gerd Klauss to get him informed about the problem and to get
him involved in the solution process. A senior manager has to take a leadership role and responsibility
in this IT decision. As any exception to the IT architecture must be justified. After he convinced Klauss
of the need of funding from other sources he should negotiate a higher budget with the IT
department in Germany or try to raise funds within VWoA in accordance with Klauss.

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