August 29, 2007

How IT Can Drive Business Process Reorganization

Volkswagen chief information officer, Klaus Hardy Mühleck, has championed the CIO’s role as the arbiter of business process and enablement.

Authors: Detlev Hoch and Jürgen Laartz, The Quarterly

At a time when many CIOs find themselves increasingly distanced from the executive suite, Volkswagen’s CIO Klaus-Hardy Mühleck sits on the executive board and has responsibility for defining business processes throughout the company. In that capacity he has championed a new organizational IT structure to use resources more efficiently and effectively. Process integration officers work across business units to simplify the capabilities of entire business domains—for example, a PIO in the order-to-delivery unit evaluates processes from the customer order back through sales, manufacturing, and design. Throughout Mühleck’s career, he has promoted the use of IT to simplify processes, gain a competitive advantage, and create value. Detlev Hoch and Jürgen Laartz, directors in McKinsey’s Düsseldorf and Berlin offices, respectively, recently spoke with him about how and why he has reorganized the IT function and the results that Volkswagen expects from the effort.

The Quarterly: You’ve helped lead Volkswagen through a transformation over the past few years—from a company whose IT function just supported the business to one where IT leads change and works hand in hand with the other functional leaders to innovate. Can you tell us about that transformation?

Klaus-Hardy Mühleck: In many companies and in a lot of industries, you will find that IT isn’t a core competency. It’s more or less a historical discipline—running data centers, preparing and servicing different clients. And management views it as a cost center.

But over the past ten years at Volkswagen, we’ve begun to talk about the role of the CIOs and how to focus their skills on business enablement. This is not a hard leap to make for executives in some younger industries, like mobile communications. But in more established industries, like automotive or energy, it takes a little more work, since explaining to senior managers in other functions how IT can help play this leading role is a real paradigm shift. So if we discuss finance and control with finance leaders, we tell them how we work with SAP to prepare standard processes for accounting and controlling work. From there, we have to agree that to map out new processes, we must work collaboratively, bringing together the IT and business knowledge to design what’s possible. We call this “concurrent engineering.”

And of course the same is true in automotive design. It’s no longer possible to talk about designing automobiles or manufacturing facilities without IT’s input, because the vehicles and the factories are all digital—all based on digital models. In fact the biggest challenge in the product part of our business is to accelerate product development and manage the complexity of different products and versions. In a company like ours, this complexity is intensified by the high degree of interaction we need between the R&D departments of our various brands and of our external engineering partners. It’s no longer enough just to involve IT; innovation must be driven by IT.

The Quarterly: So you reorganized the IT function to align it with the business domains?

Klaus-Hardy Mühleck: Yes, we designed the organization to better suit this evolving vision of IT. First, we created a new role, that of the PIO, to lead the strategic redesign in several areas of the business. We have four of these positions so far. One PIO works in the product creation process, including design, engineering, prototyping, production planning, and tooling—the total process of creating a new automobile. A second works in order to delivery and helps to rethink processes from the first customer order back to the factories, supply chain management, shop floor processes, and then back to the customer. The third is in sales, marketing, and after-sales support, coordinating these activities between Volkswagen, the wholesalers, and the retailers. This responsibility includes auto sales through all distribution channels, as well as after-sales service, warranties, and spare parts. And the fourth manages strategic and supporting processes, which include human resources, finance and control, and treasury. All of these officers work closely with their counterparts in the business departments, whether in accounting, engineering, production, or logistics, to design new architectures and processes to enable innovation. And they’ve also had to develop new skills within their own organizations, to bring those IT people up to speed on the businesses they’re working with.

We also defined a new organization of IT architects under the chief technology officer. We carved this group out of the old IT organization and staffed it with developers and application-management folks with strong architectural skills. This group is responsible for all the technology definitions and platform standards and also for managing delivery. And we grouped our application-management activities—separate from development—into one organization, to provide higher-quality services at lower cost.