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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