A massive change in the Volkswagen Group’s IT system landscape is looming. In an interview late last year, Group CIO Martin Hofmann talks about the burden of VW’s technological legacy, cultural change within the company and the opportunities afforded by new technologies. 

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Hofmann: “We are planning to build a digital production platform that connects every plant in the world” (Photo: Claus Dick)

Volkswagen Group has deliberately decided against establishing a board-level digitalization and IT division. What consequences and challenges does this pose for Group IT?

We are focusing completely on our jobs. Our assignment to a particular department doesn’t change anything. We have our hands full and still more to do. We are pressing ahead with the modernization of our IT systems and are gradually moving them into the cloud. We are working hard to make new digital solutions more convenient, secure and efficient for our customers and users in the entire company. And we are ensuring that the Volkswagen Group will continue to be well-positioned on the crucial IT issues of the future. This involves artificial intelligence, smart robotics, cybersecurity and even quantum computing.

The German government is doing without a digital minister, and one of the largest and most important companies in the country is rejecting the idea of a dedicated unit for digital issues. Isn’t this saying something about Germany as a leading location for business?

Here I can only speak for Volkswagen. Doing without a digital, board-level organization doesn’t mean we are turning away from these issues. Everyone is moving ahead on these fronts precisely because digitalization affects the company across the board. No department is untouched. Every division and department knows its own assignments and opportunities best. With our special competencies, we in IT see ourselves as a connecting link, an enabler, a stimulus and a source of support. I am convinced that central management from a board-level entity would not be nearly as effective.

Is there something like an unofficial catalog of demands that VW CEO Herbert Diess has given to IT?

We are doing our part to get the Volkswagen Group in shape for the future. In concrete terms, this means modernizing IT systems, setting group-wide standards, and leveraging efficiencies and synergies. One thing is clear: in the future, we won’t have the sheer number of different systems that the company afforded itself at times in the past and that sometimes grew uncontrollably. In our role as Group IT, we are going to set the guardrails much more firmly in place. But we are ready to use our full range of expertise and capabilities to develop precise, high-performance applications for our brands and divisions.

Is Finance Chief Frank Witter inclined to see IT as an enabler or a cost?

Frank Witter has worked with us to sketch out a clear path forward for Group IT. We are completely aligned. One of the focuses is to standardize IT processes in general as well as with IT across the entire company.

Does Volkswagen need a Business IT 4.0 or even 5.0? What will the hallmarks of IT’s success be in the next decade?

The modernization and standardization of our group-wide IT systems continues to be our most important task. We are not going to let up. In fact, the pace is going to accelerate. This is certainly one of the factors for success by which state-of-the-art IT must be measured.

What timeframe do you have in mind for this overall modernization of IT?

We are ambitious, and we have to be, in order to keep up the pressure. For example, we are planning to build a digital production platform that connects every plant in the world down to the shop-floor level. In sales, we are migrating our systems and we are even developing new systems in the cloud ourselves. In coming years, we will be setting aside several billion euros for these and a number of other projects.

The more digital solutions you build, the older some of the legacy systems feel to the users. Where do you see a way out of this dilemma?

You have to connect the two worlds as well as possible. For example, we are introducing new dealership solutions that can dock with the cloud and that users can operate easily from mobile end-devices. Meanwhile, all the legacy systems that we are just now migrating are operating and feeding the applications. Over the next few years, we will be gradually decoupling the new technologies from the legacy world so we can shut down the legacy systems without concern.

Are the dealerships on board?

Absolutely. They welcome the fact that we are in the process of developing new systems.

How long can you keep the legacy systems, which are decades-old in some cases, up and running?

Careful attention and systematic classifications are important here. Some mainframe systems have been operating for decades at the company, and have been virtually free of interruptions and the level of their performance has been sufficient, even comparable to a Swiss watch. It is a matter of gradually adopting new systems and initially using them where the need is the most urgent. In 10 years, there may still be a few legacy systems left, but we will certainly have replaced the majority by that point.

vw-hofmann-2018-2-287x300 Hofmann: “In 10 years, we will have replaced the majority of legacy systems”  (Photo: Claus Dick)

Just one IT initiative has been rolled out to all of the Group brands recently. Starting in 2019, all vehicles are scheduled to use pWLAN communication technology. What else you have in the pipeline?

We have a few things on tap. For example, the focus is on a common digital production platform for all group plants. We will be integrating our suppliers into it as well. Aside from our concrete projects, we have also continued to develop organizationally. For example, we will make sure that these kinds of major projects only need to be developed once for all the brands, and then each will reap the benefits.

Will suppliers have to make adjustments to your new platform or can the companies simply dock into your world of IT systems?

Both will be possible. In projects of this kind, we always like to see advantages for everyone involved. This includes a fast exchange of orders or information on adjustments to production and logistical processes. Walled-off solutions that only help one side are not viable.

In gigantic projects of this kind, do you have the traditional German goal of achieving 100 percent success or are you pursuing a more open course with IT? The key phrase here is “culture of failure.”

The term “culture of failure” is a tough one as it is sometimes misunderstood. It is clear that our first and foremost task in IT is still the secure, uninterrupted operation of all our systems, around-the-clock, every day. There can be no slip-ups, and this applies to every project. But modern software applications can no longer be developed based on a specifications book that is worked off over several years. The result might be largely error-free, but the product would be an antiquated one and thus useless. I am convinced that digital products today must be developed iteratively. The development process must be flexible enough that adjustments can always be made quickly, for example, when errors and shortcomings are identified and are openly addressed.

Let’s return to the issue of new technologies: How do you assess the importance of artificial intelligence and self-learning systems to the Volkswagen Group.

The use of artificial intelligence will change many products and technologies, and it will even make some possible in the first place. Just think about autonomous driving. There will be progress in the nature of human work with the help of applied artificial intelligence. That’s why the technology will have a great deal of potential for Volkswagen, and not just for productivity. It will help the company master complexity, which is on the rise.

Our priority is always to tie human capabilities and competencies to artificial intelligence or to support people with AI. Artificial intelligence relieves employees of some of the more demanding aspects of their jobs. It can also provide them with an even better basis for decision-making and the freedom to take on new tasks. This is not just a matter of technical feasibility. Artificial intelligence is not an end in itself. It must serve people in a way that makes sense.

When we think about the future systematically, we realize that AI will eliminate a lot of jobs…

There will always be an ebb and flow between technological advances and employment figures. This will also be the case with artificial intelligence. The fact is that digitalization has not yet led to a situation where we employ fewer people at Volkswagen. This is in part due to the fact that we are developing, building and selling more and more cars, forming new digital business units and establishing new IT and data-driven business models. We need skilled staff for all of this. That’s why we train our employees and we naturally need more of them.

Mr. Hofmann, let’s be honest: At the end of the day, what are the odds that everything we have discussed relating to the digital transformation will actually become part of the company culture at Volkswagen, a company with more than 640,000 employees.

I am very confident about this. The digital transformation of a huge company like Volkswagen is a major task. And sometimes it’s hard to accelerate processes in a large organization of this kind. But there is a will to change. I’ve observed that many employees increasingly understand what digitalization offers them. It is not just a matter of new tools but new work models and forms of cooperation as well. And they see where we need to head as a company to be competitive in the future. That promotes acceptance and, to some extent, even leads to enthusiasm. We are right in the thick of the changes.