This C-Suite Recognizes That Failure is Part of Innovation

At Toyota Financial, a close-knit, collaborative group of C-level execs allows for missteps in the company's innovation strategy.

When George Borst made the jump in 1997 from general manager of Toyota's Lexus division to head of the company's finance group, he was faced with a big decision.

The finance group's four core systems were in woeful shape, needing upgrades to improve performance and keep up with the rapid growth of finance operations. Borst came to the job long on strategy but admittedly a bit short on the intricacies of IT and finance, having come from sales, marketing and product-planning groups.

"I wish I'd paid a lot more attention in college to my economics and finance courses," he jokes. "But I was sent over there for a reason: to help increase sales and get closer to the dealers."

Borst decided to upgrade all four systems at the same time, including the core receivables system, thinking that a staggered plan would take longer and trigger an endless cycle of updates and redundant fixes.

As it turned out, that decision was a mistake.

"George's error was in signing on to the upgrade of multiple legacy systems concurrently without increasing the manpower and business prowess to be successful," says Ron Guerrier, CIO at Toyota Financial Services (TFS). The core receivables system was hardest hit, Guerrier says, noting that the effort had to be restarted three times.

The IT department's reputation also took a hit. "Even though it was my fault," Borst says, "people were blaming IT for not having the capability to do it."

His mistake was trying to solve a problem without first gathering all the details and considering every variable, all while essentially flying solo. It's a mistake that neither he nor the company would repeat today. Not because Borst has a deeper understanding of all the complexities of IT, but because he later pulled together a trusted team of executives willing to share responsibility and accountability, in good times and bad.

The team includes the CEO, CIO, the vice presidents of sales and product marketing, and even the finance group's VP and general counsel -- many of whom came up through the ranks together over the past decade or more, cementing their collaborative relationships. It is a C-suite dream team, although its members might eschew that phrase because egos and lofty titles get in the way of collaboration and trust. The number one rule for this group: Leave that baggage at the door.

The TFS team's recipe for innovation and collaboration includes a list of basic ingredients: trust, courage, confidence, a sprinkling of diversity and a healthy dollop of mutual ownership of both successes and failures. Like many recipes, however, there is some wiggle room. "I'm huge on unity, but that doesn't mean everybody agrees," notes Mike Groff, who was until recently the senior VP of sales, marketing and product development at TFS. He was tapped to replace Borst as the organization's president and CEO when Borst retired on Sept. 30.

"You have to be transparent and you have to have courage," Groff says. "You've got to be willing to say things are going well when they are and when they are not, and then be able to adjust course."

The team's cohesiveness grew even stronger when TFS was spun off as a separate Toyota subsidiary in 2001 and Borst was appointed its first president and CEO. Under his leadership -- with close support from the C-suite team -- TFS has grown from $74.4 billion in total assets in fiscal 2009 to more than $95 billion in fiscal 2013. The company has more than 4 million customers and employs more than 3,200 workers.

TFS works with a nationwide network of dealers to manage all the financial aspects of purchasing or leasing a Toyota vehicle, and goes head-to-head against some formidable competitors in the finance industry, including Capital One, Chase, Bank of America and Wells Fargo.

Building a Bridge

CIO Ron Guerrier played an instrumental role in building and maintaining a collaborative bridge between the sometimes-insular business segments and IT, as well as in establishing a high level of trust among the company's top executives, Borst says. Street smart and technically savvy, Guerrier brought a no-frills vibe to the group and the organization by eliminating unnecessary barriers and chipping away at mid-management fiefdoms that stood in the way of productivity and innovation.

Guerrier is also one of the driving forces behind the company's Innovation Lab, or iLab, which was created a two years ago and is now the center of technology creativity at TFS and a nexus between IT and the organization's various business sectors. The iLab's success in bridging the gulf and enhancing the relationship between IT and business at TFS was one of the reasons it was selected last year as a CIO 100 award winner.

"I know everything I do in terms of technology systems is a part of this longer value chain, and it's to meet the needs of that end customer," says Guerrier, whose 17-year tenure at Toyota began soon after his graduation from the University of Illinois.

He grew up in some of the tougher areas of Chicago, where violence was an everyday occurrence, and his life could have taken a very different trajectory. After college, however, he set his sights on the business world and immediately started interviewing at companies like Philip Morris and Toyota. Guerrier applied to the automaker's customer service department, but ended up in collections, a stint he refers to as "eye-opening." Toyota seemed a good fit since he was looking to join a socially minded company and he was a car enthusiast. Perfect.

Today, Guerrier spends a lot of time working with youth groups to educate inner-city young people about the world beyond gangs, and working with other departments at TFS to improve IT's reputation. "I need to build up our street cred," he says. "I need to show that IT is adding value along the way."

Dealing With Adversity

Nearly every company can look back at its history and point to times of adversity, when executives and employees either rallied and survived or were crushed by the challenges. Toyota is no exception, although in its case the difficulties had more potential to devastate than most.

Four years ago, the automaker was forced to recall 14 million vehicles worldwide due to problems with the accelerators, and last year it recalled roughly half that many automobiles due to a risk of fire. While safety-related recalls are common in the auto industry, these incidents dealt a hard blow to Toyota's longtime reputation for quality and manufacturing excellence and triggered a surge of critical media.

In 2011, the company faced another frightening crisis in the form of the earthquake and tsunami that battered northeastern Japan. A few months later, unrelenting monsoon rains brought destructive flooding to Thailand. Both events severely disrupted Toyota's supply of parts and affected the worldwide production capabilities of all Japanese automakers. The earthquake alone caused Toyota's profits to plunge more than 18 percent as production lines went idle and orders were left unfilled.

All this occurred as the Great Recession swept in, an implacable force that battered the economy and the business models of companies like Toyota that are dependent on new sales and the disposable income of consumers. Despite all this, Toyota bounced back and earlier this year recaptured the title of the world's largest automaker with global sales of about 9.75 million vehicles last year.

It would be easy to attribute Toyota's resilience to the worn cliche that Japanese companies operate according to a less individualistic philosophy than most U.S. concerns. This is true to some extent, of course, but it's an oversimplification.

"We live in a world of kaizen," says Borst, dropping the Japanese term for continuous improvement and change for the better, though in this case he also means pulling together and overcoming seemingly insurmountable obstacles.

"Toyota is a very collaborative environment," adds Groff. "We had some failures along the way, and that just caused us to take a step back" and reassess, he says, pointing to a few missteps affecting both the business and IT.

One Innovation Lab project that seemed to have potential, but was ultimately dropped, was a secure printing app for mobile devices. The printing app went against the grain of TFS' green initiatives and was not approved to move forward, says a company source.

But when executives emerge from adversity and take responsibility for both failures and successes, the bonds between them grow even stronger.

Sometimes admitting failure can be not just tough but also expensive, as in the case of the early and wrong decision to upgrade all the group's core systems at once. "I think it was one of the most disappointing things during [Borst's] tenure here, because we spent so darn much money and didn't have much to show for it," Groff says.

The company has since improved its decision-making process by adding a division information officer who oversees business-IT partnerships on specific technology projects and manages requirements gathering, says Guerrier. In October 2012, for example, the IT department got the green light to take a more surgical and collaborative approach when the decision was made to again upgrade the core receivables system, Guerrier says.

Another project, which has been rolled out to TFS dealers as a major new product, is the e-Contracting system, which streamlines the entire legal and financial process associated with customer contracts, including policy checks and document management.

Rolling Out Mobile Apps

Meanwhile, the Innovation Lab acts as an incubator and helps vet ideas for smaller but still-important IT projects. For example, the lab was the genesis of successful iOS and Android apps that were pitched and created by internal mobile app development groups to build on the company's expanded use of smartphones and tablets in its interactions with dealerships.

Two of these apps were showcased in August at the company's national sales conference:

  • an enterprise social networking app (in development) that leverages SharePoint 2013 to give sales associates immediate access to multiple feeds of relevant information and sends them push notifications of important leadership or sales meetings
  • a reporting app (being deployed now) that delivers performance indicators and measures -- such as vehicle sales and market share -- that help sales staff take a more interactive and controlling role in the consultative sales process with dealers.

The iLab was created during the tenure of Guerrier's predecessor as CIO, Dan Priest. The idea was to establish a formal hub where both business and IT people could come together to discuss new concepts and hopefully provide the spark for projects that would benefit the company.

"Dan did a phenomenal job of resetting our agenda," Guerrier says, noting that when Priest arrived in June 2010, IT had a lot of muda -- the Japanese word for waste and uselessness -- that Priest cleaned up. "He gave us the breathing room to do such things as the Innovation Lab."

Guerrier has worked with other TFS execs to take the lab to the next level, turning it into a game-changing asset that functions as an idea generator to inspire creativity among employees at all levels of the organization and determine which ideas have the most promise. Participants in the annual Innovation Fair showcase projects that have already been implemented in their departments. And throughout the year, creativity and innovation workshops bring people from different departments together to analyze an issue and brainstorm potential solutions.

TFS also stages internal innovation competitions, where all employees can pitch new ideas and possible projects -- some more far-fetched than feasible. The competitions are organized by VP and General Counsel Katherine Adkins, a member of the C-suite team who has an official sideline as the company's champion of innovation.

While the lab is basically a space outfitted with computers, large touch-screen displays for presentations and videoconferencing, collaborative workspaces and other tools, it is part of the glue that binds the TFS team together and gives its innovation strategy staying power. Oddly enough, the lab has also helped people in both the business and IT acknowledge the possibility of failure -- and figure out when to pull the plug on a pilot.

Adkins says she works closely with the CIO on her innovation efforts and that, while IT owns the iLab, having someone outside IT serve as an innovation coordinator improves how others perceive the effort.

"If you have a CIO who is also the chief innovation officer, then that connotes to your people that only technology equals innovation," she says, but in fact innovation can certainly happen outside of IT.

CIO Guerrier says he's comfortable with Adkins' role as chief innovation instigator. "It's not about her better position or my worse position," he says. "If she does this right, and I do my part right, we're all better."

Guerrier's comfort with Adkins is based largely on the fact they have a long history of working together at TFS. They first met when Guerrier came to the Torrance, California, headquarters in July 2005 as a national manager overseeing IT operations and service. Adkins was also a national manager and a retained attorney at the time, and she worked with Guerrier on a number of projects -- as he puts it, "sitting in the trenches, going through long negotiations" -- where they developed a relationship of trust and respect.

The Next Chapter

The C-suite dynamic may see some subtle changes as Groff, the new CEO, looks to make his own mark on the organization. Whereas Borst projected a professorial and almost folksy image during his tenure as CEO, Groff seems to be a more pragmatic, by-the-numbers type of leader.

Groff is committed to C-suite collaboration and to sparking innovation, but he says the efforts need to mature and become totally aligned with business objectives. "We're not quite there yet," he says.

While it's still early in his tenure, Groff says he'd like projects and initiatives to progress more quickly from concept to execution -- without getting bogged down in overanalysis. "The world is moving awfully quick, and I think you've got to keep changing with it," he says.

In the last few years, TFS has let innovative experiments run "for a few months, six months, maybe a year, and then we'll decide whether we're really going to plunge into it in a big way," Groff says. But if a project isn't going anywhere, the new CEO may be a bit more aggressive in pulling the plug, given his background in finance (as opposed to the previous CEO's experience in sales, marketing and strategic planning).

"In the past, we probably had a tendency to stay with it, fuel it with more money, bring in a different team, and then two years later say, 'This isn't going anywhere.' Instead, I'd like to see us be willing to say, 'This one just isn't going to fly, now let's move on.'"

If there is a sharper focus on success metrics and less tolerance for marginally successful projects, that could also put a bit more pressure on Guerrier as CIO. Groff says he'll be expecting the CIO to have the courage to tell the new CEO whether the company is on the right path or not.

"I'm really going to be looking for Ron to do that. Be honest, be transparent, and be thoroughly straightforward," Groff says. "We've got to be honest with each other."

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