Volkswagen of America: Managing IT Priorities Essay
Volkswagen of America: Managing IT Priorities
In today’s world, IS alignment is crucial for the operation and growth of businesses. Information systems allow businesses to deal with vast amounts of complex information and run more efficiently. Founded in 1930s, Volkswagen is the leading automotive vehicle manufacturer in Germany. However, its USA branch was facing problems with inadequate IT human resources due to excessive outsourcing and a reduction of internal IT staff. Additionally, an inadequate budget to cover the considerable cost of multiple IT projects was aggravating the issue. A prioritisation of IT and business activities and a strategic allocation of the budget are essential in resolving Volkswagen’s problems. This paper will analyse Volkswagen’s business and IT strategies (based the case study), and identify various issues encountered by Volkswagen management. I will demonstrate how the company can solve these issues by allocating its limited funds to support its IT infrastructure development.
As its name suggests, Volkswagen’s objective is to design and manufacture quality fuel efficient and affordable cars. Through constant evolution, Volkswagen has not only dominated the automotive market in terms of lower-priced cars, but has also gained industry recognition for their midsized and emerging vehicles. This has been achieved through their comprehensive competencies in business strategy and manufacturing capability, as well as their extension of product portfolio, i.e. the introduction of several new brands (e.g. AUDI, Bentley) and a wide range of models. Volkswagen still maintains its competiveness over most other auto brands (Interbrand 2014).
However, this was not always the case. After the 1960s sales dramatically decreased, fluctuated, and then remained at a fairly low level (Austin 2007). Although Volkswagen invested large amounts of money in an attempt to improve business, their revenue did not increase as expected. However, through various other improvements, one being the assistance of information technology, their financial problems could be resolved. During the 1980s and 1990s, innovative information technologies started to boom. At the time, Volkswagen underestimated the power of information technology and therefore did not fully take the advantage of it. This became part of the reason that Volkswagen was unable to prosper, for information systems would become an integral asset to Volkswagen.
Business IS alignment is the correspondence between the business objectives and the Information Technology requirements of an enterprise (Rouse 2006). Achieving IS alignment requires a systematic understanding of the business objectives of the enterprise and the comprehension that alignment is an iterative process which continuous measurement and enhancing is needed (Chan 2002).
The shortage of sufficient funds was the major issue that Volkswagen America was facing. However, a more in-depth analysis it was a lack of awareness of how IT could benefit the business. In other words, the implementation of IT not only costs money, but also is a functional and indispensable business component that helps a business earn more money. The management of Volkswagen was hesitant to adopt IT, thinking that it may become problematic and expensive to implement. Resulting from this lack of funding, a prioritisation of expenses became crucial. Some projects either received partial funding 2
Case Study 2 Volkswagen of America: Managing IT Priorities or relied on taking funds from other projects, while some projects receive no funding. It was extremely difficult for CIO Matulovic to set these priorities (Austin 2007). The best approach would have been to prove that IS alignment would be beneficial to business, especially in terms of return on investment, causing more finds to be allocated to IT. As discussed above, the ultimate desired outcome of adopting information technology is an increase in Volkswagen’s revenue. This can helped be achieved in a variety of ways:
1. With the growth of business and more brands added to the product line, the management of pricing, distribution, and after-sale service has become more complex. With the implementation of information systems, sales figures and ongoing problems could easily be reported to headquarters, which assists in better decision-making.
2. Departments and distributors can communicate more effectively through communication software, such as Lotus Note that was implemented by PwC (Kling 2007). This will result in less phone calls and face-to-face meetings, enabling staff to spend more time focusing on sales.
3. A Customer Relationship Management system could help Volkswagen understand consumer behaviour by engaging with current clients, enabling the company to provide more personalised service.
4. The prevailing Big Data technology can collect consumer data and help identify potential customers so that the marketing activities can be more targeted.
5. Integrated Inventory-Transportation System could make the delivery and inventory management of motor vehicles more logical and efficient, just like UPS model does by reducing unnecessary routes (Volling, Grunewald, & Spengler 2013).
There are many other benefits of IS alignment, which can help Volkswagen achieve their business goals and support the company’s business strategies. Given the high quality of the cars they produce, with better service provided, more targeted marketing, and efficient stock rotation, Volkswagen could stay ahead of the competition. Sales could be increased and more revenue could be generated. A great example to illustrate the success of IS alignment is the clothing company Zara, for after upgrading their outdated information system to a new one which allowed intercommunication between locations and better customer service, sales increased by 18% in 2012, up to €10,541 million (Grupo INDITEX Annual Report 2012).
Volkswagen currently has a prioritisation procedure and process for every proposed project due to budget limitations. With limited financial resources, vast implantations of IT appear not be infeasible while other projects take financial priority. Because this is a monetary issue, the business should focus more on receiving greater Returns on Investments (ROI), and implement projects that would see a quicker return on investment by saving costs or generating more income. If the rollout is successful, more funds can be allocated to IT projects. For other investments, if funds allows, small trials could be funded, and once proven effective, more funds could be considered. Projects that are costly and take a long time to see a return should be postponed until more funds are available.
Regardless of other investments in IT projects, internal IT personnel are essential for the business as they retain the valuable knowledge and experience, which cannot be purchased elsewhere. Therefore, maintaining at least 20 staff in the IT department is necessary, even if IT has been outsourced (although this situation is less than ideal). In addition to the great quality product, with the correct prioritisation of investment, and adequate human resource and knowledge base, Volkswagen will retain its leading position in automotive industry and see a growth in the forthcoming future. By investing in the implementation of IT, Volkswagen would see a quick and substantial ROI. The efficiency of their business, as well as their ability to provide high quality customer satisfaction would be greatly improved. Volkswagen should not fear the implementation of technology, but embrace the possibilities for business expansion that come with it.
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