In an exclusive interview with Computer Weekly, Volkswagen UK's chief information officer Nick Gaines talks about a major IT-led overhaul and best-practice in sourcing management.
Volkswagen UK is now looking at the future following the completion of a major technology-enabled transformation programme covering 25,000 users across its entire UK network and totally reversing the fortunes of the company's IT.
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After delivering the technology behind London Heathrow's Terminal Five, chief information officer Nick Gaines joined the carmaker three years ago and inherited a department in dire need of a new direction.
The automotive industry was one of the hardest-hit sectors by the financial crisis, with manufacturing plants closing, production cut back, jobs axed and share prices tumbling, but VW still decided to press ahead with the transformation.
"People always think this was a tough recession, but the automotive market in the UK decreased by a third overnight. But we chose to target our investment and cut costs to ensure we could come out of the downturn in a good shape," Gaines told Computer Weekly.
"Most of our IT systems had been installed around the late 1970s and were held together by little more than sticky tape and were really constraining the business," said Gaines.
"We had no strategy or investment plan - there had been attempts in the past to get rid of those systems but the scale of the problem was huge and the lack of capability and relationships prevented it from happening."
Gaines visited his counterparts across different countries where VW is based, then built his strategy to start the overhaul, known internally as "Transforming the way we do business". The programme encompasses the re-engineering of the company's infrastructure as well as vehicle sales, customer relationship management and logistics processes.
According to Gaines, the technology aspect of the project was "fairly straightforward". Back in 2007, the company heavily outsourced its technology function but the rapport with its main service provider T-Systems was far from ideal.
"What we really needed to work on was the relationship with our outsourcing partner. I had a contract that was little more than a page of paper which gave no certainty whatsoever in the delivery performance," he said.
Rekindling supplier relationships
To mitigate the issues, a multisourcing approach was introduced and new suppliers were hired: Tata Consultancy Services to work on infrastructure projects - described as a "huge change for such a risk-averse business" - and Cable and Wireless to look after the firm's network. But the problems with T-Systems still needed to be addressed.
"We had a lot of 'underground' IT and a lot of frustrated people, so building a solid internal capability and strong relationships was essential. I sat down with T-Systems and explained that the relationship wasn't working and we needed mutual trust and respect, rather than negativity and mistrust," said Gaines.
"The challenge is to rebuild the relationship by delivering some great projects together and look forward to the future. We had to let go of the past: you can't delight your customers and provide great service if you have 30 years of bad history," he said.
The transformation included requirements around an extensive list of new and existing IT systems that needed to be replaced and integrated, as well as revisited business processes - about 70% of which were changed as a result of the technology-led revamp.
T-Systems was then briefed to help VW re-create the processes and work very closely with its client. The supplier had very strict deliverables around some areas and slightly vaguer requirements around integration, according to Gaines, but the CIO added that making the relationship work was "a massive leap of faith."
"I had to bring in a sourcing model based on strong relationships and build internal capability, so we could understand and lead the technology strategy, rather than just blaming suppliers when things went wrong."
When Gaines started at VW, the company had only 17 IT permanent employees. With the transformation, numbers increased to about 60 in-house people and the entire technology workforce is now made up of approximately 500 people including outsourced staff.
According to the CIO, the car manufacturer now has a solid IT service and commercial management capability in-house.
"We are very unique in the sense that we had the opportunity to rebuild the commercial terms of our contracts and the service management model together. We have aspirations of doing things even better in future, but [the current set-up] is so far beyond than where we were in the past."
Gaines added that as a result of the changes, Volkswagen is "a much better customer" to its suppliers. And T-Systems is now considered one of the company's best partners.
Rebuilding the infrastructure
Prior to the overhaul, VW's systems were largely bespoke and dictated by the thoughts of Cobol programmers from the 1970s, while hardware would be better placed at the Science Museum, said Gaines.
Things progressed considerably since 2007: the company totally re-engineered its IT infrastructure, in a move that included a major virtualisation drive, new datacentres and extensive use of cloud computing and new systems architecture, but that was not an easy ride.
VW operated mainframe-based infrastructure which was undocumented, in use for many years and "pretty much unmaintainable", so the Gaines's team had to cut the old set-up out of the equation and all the IT around it.
"Pretty much everyone who has tried similar projects in the automotive industry either has some pretty horrible scars or they say it can only be done one slice at a time. We had to do a big-bang business change, which is something no one would advise doing," he added.
Luckily, the carmaker's brands Seat and Skoda - where an even older infrastructure was in use, which required constant "nurturing" - provided the opportunity to start the overhaul in a smaller scale.
The firm's two datacentres in Milton Keynes now house "hundreds, not longer thousands" of physical servers. For every 100 physical servers that were previously in use, VW is now running on 30-40 boxes.
"The virtualisation was phenomenally successful for us - it saved space, power, money and gave us the ability to lengthen the lives of some of our legacy systems that otherwise we wouldn't know what to do with," said Gaines.
Overall, the company had around 400 systems including bespoke systems, of which about two-thirds were Cobol-based. Over 270 platforms have been replaced and the majority of the company's current applications run on a virtualised environment.
"Wherever you are in our business, you touch on [core] systems such as stock management daily, so changing the business processes around them was hugely challenging," said Gaines.
Another example of efficiency driven by the programme is the migration of training manuals for vehicles to the web - previously the company would send CD-ROMs and paper handbooks to its dealerships.
Customer-facing web services have also evolved due to improvements in the back-end. The current set-up allows for better provision of information such as quotes and vehicle customisation, enhanced capability to handle information for departments such as marketing, as well as opportunities to do more joined-up business.
The transformation programme delivered the projects targeted initially, now the IT department is focusing on parts and after-sales.
Many of the after-sales systems at VW have been replaced and the remainder will be phased out over the next year. The roll-out of a new parts warehouse management and logistics system, which will integrate into the firm's SAP-based global parts platform, will begin next year and is expected to conclude in 2012.
The company is also looking at next-generation vehicle diagnostics systems and after-sales workshop platforms, which will involve bespoke development.
The increase in web-based resources also means more pressure on the network and VW will be working with Cable & Wireless to enhance connectivity.
At the same time, the firm is looking to consolidate about 700 web sites onto a standardised platform for its core vehicle and parts business. The current web operation is based on a mix of technologies including Silverlight and Java.
According to Gaines, work online is a "never-ending story" though the fundamentals are in place to support further improvements around the web sites. Audi has already started working on the rationalisation and the IT department is working with marketing to analyse the learnings so far and determine future outcomes.
VW has been a prolific user of cloud computing, but in a controlled manner. According to Gaines, the company tends to go for the hosted approach in areas where there is a low business risk. For example, VW's e-learning platform for dealerships is cloud-based, as are the human resources and payroll systems and expenses applications.
"Cloud is everywhere and we wish we could use more of it, but the dilemma is around the quality of integration and security. For us, it is very difficult to put the detailed data about our products and customers on the cloud," said Gaines.
"We are in a very competitive business and are very conscious about security, however we do have a very effective internal cloud so where we can control the end-to-end process," he said.
In his previous role, Gaines was accountable for systems engineering across BAA, including all IT programmes for Heathrow and Terminal Five. With the experience of delivering large transformation projects under his belt, the IT chief's message is that technology is just a means to an end.
"Technology doesn't really matter, what matters is what you want to do with it.
It is all about determining what the business wants and what plumbing will facilitate that," said Gaines.
"Here at VW, we have built the [IT] capability and relationships required to take the business forward but the most important thing is changing the way people think," he added.
"What have I learned? I spent most of my life building stuff - power stations, trading floors, airports - here, most of the work was straightforward from an IT perspective, but it was a major people and relationship change. And that is tough."
Best practice: changing your sourcing strategy
Volkswagen UK CIO Nick Gaines gives his tips for IT leaders looking to switch to a multisourcing approach:
- Ensure top-notch internal commercial management: "Sophistication of contracting is higher, so your internal capability must be of the right quality. It is also important to bring in consultants with experience in that sort of transition to help out."
- It takes time for in-house staff to get it: "Don't underestimate the amount of work it takes for your own people to understand the sort of service you are buying. Outsourcing things you don't understand is a recipe for disaster."
- Let go of the past: "Focus on the future, because if you spend all your time to prevent the [mistakes of the] past and not on where you want to be, you have a risk-averse relationship and don't have the ability to move on."
- Have a compelling business reason: "There were compelling reasons for the transformation at VW, as the IT we had was constraining the business. But enrolling the business in the change is essential."