Car giant Volkswagen has rationalised its IT systems and reduced its IT headcount as part of a wide-ranging cost-cutting and restructuring programme to boost efficiency and reduce the complexity of its processes.

The continuing reorganisation has seen thousands of applications removed, with numbers down from 4,000 to just 300. VW is also set to cut thousands of jobs between 2007 and 2009 across all departments, although it does not expect to make layoffs.

VW makes Audi, Bentley, Bugatti, Lamborghini, VW, Seat and Skoda cars. It produces about 24,000 cars a day in 44 countries around the world.

Group chief technology officer Stefan Ostrowski outlined VW’s overhaul of its business processes to delegates at the Forrester IT Forum in Edinburgh. With 22 new car models in the works this year, VW needed to deal with an "explosion" of costs and lengthy 60-month planning cycles for new models, he said.

The car maker also faced a fierce threat from Asian and European rivals who operate less expensively with lower labour costs. "A closer connection between development, purchasing and production was a major target,” Ostrowski said.

VW wanted to increase sales and do more development and production itself, rather than outsourcing activities to suppliers. When it came to designing new models, the engineers needed to "know what the consumers want in a car five years from now".

Ostrowski explained that sourcing spare parts and logistics was a "crazy challenge", and the group needed to reduce complexity by "harmonising our processes".

"We have plants all over the world. But if a car is built in China, it needed to have components built in China, to reduce development time," he said. The IT department needed to change accordingly, and become involved in the process of transforming VW, he added.

Ostrowski said the redesign started in 2005, when then chief executive Wolfgang Bernhard put the chief information officer on the board of directors.

Traditionally, VW's IT department had been a service provider to the business,. The business owned most of the budget and ordered IT to deliver projects, Ostrowski explained. The VW group had IT dispersed across every region, as well as a separate IT department for every car brand.

But the board members engaged IT as a "co-designer" and challenged the IT organisation to "take an active part in the redesign of processes".

As part of its “master construction plan”, VW created an overarching horizontal IT team – called the IT and process organisation - to look after business processes, rather than business functions. The company has also cut IT headcount as part of its overall restructuring effort.

The IT group also functioned as a mediator between the engineers and the production floor, Ostrowski said. "The engineers know their processes in designing a car, and the production team know best the process to build a car. Nevertheless, if we want to develop cars that can be easily built, we need to bring these two departments together. IT functions as a mediator bringing groups together."

VW trained 400 IT people in business processes and modelling, and in how to mediate between the different functions. Rotation of IT people to different business areas every four years is heavily encouraged, to give staff new skills, Ostrowski said.

"Communication is important because if IT does not reach the business side with business language, you will not change anything," he said.

Ostrowski acknowledged there is a risk that complexity can creep back into the processes, but said this was the only way forward for the company.

"Today we have 130 models to manage. We are not able to run wide variety of models if we do not get more efficiency into our processes. We cannot survive with this strategy.

“There's been an explosion of costs, there was inefficiency and there were problems with quality. Quality problems have been reduced dramatically, just from harmonisation of processes. Yes there is risk, but there is no other way."

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