IT Governance at Volkswagen

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IT Governance at Volkswagen
MBAM 613 Week 6, 2007
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Agenda

• 600 - Introductory Comments
• 610 - Quiz
• 625 - EC Presentation (Tee)?
• 635 - Basic Governance Models
• 700 - Course Evals Break
• 715 - Presentation
• 750 - EC Presentation (Ryan)?
• 800 - Volkswagen Case
• 845 - Final Exam Review
• 900 - hors d'oeuvre at Dukes (my treat)?

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Quiz
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What's the problem at VW?

• What's the problem when Dr. Mutolovic arrived?
• What's the state of their current IT portfolio?
• How have IT funding decisions primarily been
  made? How has that worked?

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IT Governance

• Today you will learn several approaches to
  structuring an organizations IT decisions. You
  will also learn the markers of an effective
  structure and what decisions you should NOT allow
  IT people to make.

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What is IT Governance

• How IT decisions are made
• Who makes IT decisions? Who is allowed influence
  in these decisions?
• Who is accountable for IT outcomes?

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Why IT Governance Matters

• What are some reasons that governance is
  important?
• Clear governance builds credibility
• Good governance means better delivery
• Governance helps synchronize IT strategy with
  business strategy
• Governance encourages desirable behavior in the
  use of IT

Based on these descriptions...how would you
characterize the IT Governance at VWoA prior to
2002?
Source Broadbent Kitzes, The New CIO Leader,
2004 Harvard Business Press
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Why is IT Governance Important?

• Good IT governance pays off
• 40 higher ROI for well governed firms
• IT is expensive
• Average firm gt4.2 of annual revenues
• Average firm gt50 of annual total capital budget
• IT is pervasive
• IT skills and interest throughout organizations,
  not just IT
• Estimated only 20 of IT spending visible in IT
  budget
• New IT bombards enterprises with new business
  opportunities
• Governance is critical for organizational
  learning about IT Value
• IT value depends on more than good technology

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How Governance affects value of IT

• Clarify business strategies and the role of IT in
  business strategies
• Measure and manage IT spend and the value
  received from IT
• Assign accountability for the organizational
  changes required to benefit from new IT
  capabilities
• Learn from each implementation, becoming more
  adept at sharing and reusing IT assets

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What does IT governance include?
Source Weill Ross (2004) IT Governance How
Top-Performing Firms Manage IT Decision Rights
for Superior Results, Harvard Business Press.

• Domains Areas where IT decisions influence
  behavior
• Styles A governance style is a combination of
  decision and input rights at a firm.
• Mechanisms Techniques and mechanisms for
  enacting governance styles

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5 Domains of IT Governance
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IT Principles/Maxims
Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT

• High level statements about how IT is used in
  the business
• Questions Is IT a strategic asset? A customer
  focus? A cost cutter?
• Examples

• Metlife
• Enable the business
• Ensure info integrity
• Create a common customer view
• Promote consistent architecture
• Utilize industry standards
• Reuse before buy buy before build
• Manage IT as an investment

• MeadWestvaco
• Benchmarked lowest TCO
• Architectural integrity
• Consistent, flexible infrastructure
• Rapid deployment of new apps
• Measured, improving, communicated value and
  responsiveness

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IT Architecture
Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT

• Organizing logic for data, applications, and
  infrastructure, captured in a set of policies,
  relationships, and technical choices to achieve
  desired business and technical standardization
  and integration
• Where does shared infrastructure stop and
  applications begin?
• Build flexible architecture, consistent with firm
  mission

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IT Infrastructure
Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT
LocalApplications
Fast-changing local business applications such as
insurance claim processing, web bank loan
applications, customer complaints support system,
phone order support system
IT Infrastructure
Shared and standard IT applications
Shared and standard applications that change
irregularly, such as accounting, budgeting, HR
mgmt
Stable over time, PC/LAN access, management of
shared customer databases
Shared IT services
Human infrastructure of knowledge, skills,
policies, standards, and experience binds
components
Human IT infrastructure
IT components
Commodities such as computers, printers, routers,
database software, operating systems
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Business Application Needs
Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT

• Specific business needs that directly generate
  value
• Two conflicting objectives

• Disciplined Execution
• Architectural integrity
• Ensuring applications leverage and build out the
  enterprise architecture
• Focus committing the necessary resources to
  achieve project and business goals

• Creative Solutions
• Identify new, more effective ways to deliver
  customer value using IT
• Identifying applications that support strategic
  objectives and facilitate experiments

VS.
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IT Investment and Prioritization
Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT

• How much to spend
• UPS and FedEx spend 1 billion per year on IT,
  while FedEx revenue is 1/3 less.
• How to allocate IT dollars IT Investment
  Portfolio
• Projects should be classified into business
  objective categories
• Considers risk from market, financial,
  organizational, and technical perspectives
• Portfolio enables management to select projects
  that shape the portfolio of the enterprises
  strategy
• How to align investment with strategic priorities

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Six Styles of IT Governance
Centralized Business Lead

• Business monarchy
• Top Managers
• Federal
• Combination of corporate center and SBUs
• Feudal
• Each SBU makes independent decisions
• IT Duopoly
• IT group and one other group
• IT monarchy
• IT specialists
• Anarchy
• Isolated individual or small group decision making

Specifying the decision rights and
accountability framework to encourage
desirable behavior in the use of IT
Centralized IT Lead
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Recognizing Good Governance

• More managers in leadership positions could
  describe IT governance
• Engage in governance more often and effectively
• More direct involvement of senior leaders in IT
  governance
• Clearer business objectives for IT investment
• More differentiated business strategy
• Fewer renegade and more formally approved
  exceptions
• Fewer changes in governance from year to year

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Governance Types
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IT Governance three mechanisms

• Decision making structures
• Org units and roles for making IT decisions such
  as committees, executive teams, business/IT
  relationship managers
• Alignment processes
• Formal processes for ensuring daily behaviors are
  consistent with IT policies and provide input
  back to decisions
• Communication approaches
• Announcements, advocates, channels, education
  efforts

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(No Transcript)
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Break
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Extra Credit Presentations

• Collette Soon

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Volkswagen

• Please summarize the case
• Should Dr. Matulovic agree to the requests for
  special exceptions?
• Whats generating all of the extra project
  requests?
• What problems arise from over-commitment?
• Whats your assessment of Volkswagens IT
  Governance?
• What should he do about the Supply Flow project?

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Final Exam

• Content
• Class Lectures and Reading Review (35 points)?
• Hammer and Champy Review (25 points)?
• Case analysis (40 points)?
• Delivery
• Online in Blackboard
• 2 hour time limit
• Closed books/honor system
• Will be available this afternoon. Must be
  completed by next Monday at noon. (I prefer
  earlier since grades are due by Wednesday.)?

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Admin

• Please complete peer reviews by today.
• No class next week. Enjoy the long
  weekend/break.
• Lunch will be ready at noon at the club house.

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The End!
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What would you do?
You are the Sr. IT Staff of ACME, Inc. In your
annual budget review meeting (you have discretion
over 8M) the following requests were made.

• Sales Marketing requests 5M for a CRM to boost
  marketing effectiveness by 10.
• Production requests 6M for a new ERP system to
  streamline the manufacturing processes across all
  global facilities. This will result in 15 cost
  savings.
• Distribution requests 4M for a new SCM system to
  enable e-Sourcing and RFID tracking throughout
  the supply-chain. This will enable closer
  relationships with suppliers and distributors.

Which do you support and why? What additional
information do you need?
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IT Governance three mechanisms

• Decision making structures
• Org units and roles for making IT decisions such
  as committees, executive teams, business/IT
  relationship managers
• Alignment processes
• Formal processes for ensuring daily behaviors are
  consistent with IT policies and provide input
  back to decisions
• Communication approaches
• Announcements, advocates, channels, education
  efforts

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Decision Making Structures

• IT Policy Committee
• IT Security Committee
• IT Steering Committee
• Executive Steering Committee
• Executive Commitee

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Alignment processes

• IT investment approval process
• Architectural Exception process
• Service-level agreements
• Chargeback
• Project tracking
• Formal tracking of business value

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Communications approaches

• Senior management announcements
• Formal Committees
• Office of CIO or IT governance
• Working with nonconformists
• Web-based portals

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Assessing Performance
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Whos in Charge Here?

• Based on the items weve discussed about IT
  governance and typical patterns for establishing
  decision rights in high-performing organizations
  what are some decisions you think IT should make?
  What are some decisions business should make?
  In small groups, list 2-3 of each.

Source Ross Weill (2002) Six Decisions your IT
people should NOT make. HBR
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Six Decisions

• How much should we spend on IT?
• First, executives must determine the role of IT
  in the firm.
• Then, define clear business goals for IT, not
  ambiguous visions like the right information to
  the right people at the right time.

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Six Decisions

• Which business processes should receive our IT
  dollars?
• This is a business decision, not an IT decision.
• This is a highly political decision that requires
  executive commitment.
• When IT makes this decision, no one is happy.

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Six Decisions

• Which IT capabilities need to be business-wide?
• Company-wide standards offer many efficiencies
• Local exceptions allow for greater
  responsiveness.
• Failure to make this a strategic decision will
  either create unnecessary costs, or undue
  limitsreverse synergy!

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Six Decisions

• How good do our IT services really need to be?
• Require a break-down in costs
• If left to IT, they will usually want optimum
  performance because its more fun
• Be explicit about your needs

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Six Decisions

• What security and privacy risks will we accept?
• Tradeoff between convenience and privacy
• Varies with time and current events

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Six Decisions

• Who do we blame when things dont work out?
• Usuallymanagement
• Management sponsors need the authority, time,
  and resources to implement IT.
• Expect IT to deliver on-time and on budget. But
  management must take responsibility for
  organizational change (e.g., process improvement,
  training, system use)?