Toyota's Big Fix: An IS Department Turnaround

How Toyota's CIO radically restructured her entire approach to IT and regained the trust of the business.

At Toyota Motor Sales USA's headquarters in Torrance, Calif., there's a circular patch of manicured earth that separates the IS building and corporate headquarters. A brook winds its way through lush flowers and pine trees, and a terraced path connects the two buildings.

For many years, this was about the only thing the two groups shared with each other.

Metric Heaven

A digital dashboard supplies Toyota's business executives with vital statistics about IT. Read Toyota Fills a Metrics Gap.

For the business execs at Toyota Motor Sales (TMS) peering across the courtyard at the Data building, the deep black windows were a symbol of IS's opacity. These executives felt that IS was unresponsive, and they had little clue where the money was going. "One of the complaints was that we spent a lot of money on IT projects, and [the business] was frequently disappointed with the results," recalls Bob Daly, group vice president of Toyota Customer Services. Daly says badly handled projects-such as a delayed PeopleSoft ERP implementation and a protracted parts inventory initiative-led to finger-pointing between the two factions.

Meanwhile, behind the darkened windows of the Data building, Barbra Cooper's IS staff was buried under the weight of six enterprisewide projects and could barely keep their heads above water. Called the Big Six, they included a new extranet for Toyota dealers and the PeopleSoft ERP rollout, as well as four new systems for order management, parts forecasting, advanced warranty and financial document management. Feeling besieged, the IS group made the mistake of not explaining to the business all the things it was doing and how much it all cost. It was a classic case of mismanaged expectations and fractured alignment.

By late 2002, Cooper realized that if she wanted to win back the respect of the businessâ¬and remain in her postâ¬she would have to make some radical changes. A conversation with Toyota Motor Sales' CEO, in which he questioned the sharp incline of IS's spending curve, stopped her in her tracks. In her 30 years in IT, Cooper had developed something of a reputation for coming in to clean up other CIO's messes. Now, she had to take a long look in the mirror and fix herself. And in the summer of 2003, that's exactly what she set out to do.

This is the story of how Cooper completely upended the structure of Toyota's IS department in six months in a bid to weave IT functions more closely into the daily business operations. The process was painful: She changed IS employees' jobs, exposed all of IS's shortcomings and forced her staff into the business offices. But just over a year into the new plan, IS and the business are now standing shoulder-to-shoulder when planning and implementing IT projects. And Cooper is still CIO of Toyota Motor Sales.

The Bad Old Days

When Cooper joined Toyota Motor Sales in late 1996, her reception was lukewarm. She was an outsider in a company that prizes employee loyalty. Employees with "only" five years of experience, including CFO Tracey Doi, call themselves "newbies."

Cooper was surprised to find that IS was so isolated and primitive. "I would describe it as almost 1970s-like," she says. Business units were buying their own IT systems because in-house IT couldn't deliver. There were no PCs or network management. And basic IT disciplinesâ¬:such as business relationship management and financial managementâ¬were largely absent. "No one understood the cost of delivering IT," she says.

The little face time that IS did have with the business managers was more in an "order taker" role rather than a "let's build the solution together" partnership. Relationship managers Cooper inserted in each business unit were powerless to effect any real change.

Worse, business execs cut deals with their go-to guys in IS for project approval and funding, with no thought to architecture standards, systems integration or business benefits. "Every creative person around here went running with their list of their ideas to their key IS contact who they knew the best," recalls Doi.

Before Cooper could rectify the situation, she found herself and her staff buried under the Big Six technology projects. And Cooper's senior managers seemed to have free rein to do those big projects with an open checkbook. When asked how his new job was, Ken Goltara, whom Cooper hired in 1997 as corporate manager of business systems, recalls saying at the time, "It's great. People never ask me how much things cost; they only ask me when I'm going to get it delivered. That's the only thing people care about."

On the business side, Toyota Customer Services' Daly says that most projects started out with vague statements about what the new system would do. And then, they were disappointed when the project didn't quite meet their (often unarticulated) expectations. Jim Farley, who was working as the Midwest general manager of Lexus in 1999, recalls the anxiety around the Dealer Daily initiative, an extranet designed to allow Toyota and Lexus dealers to interact with headquarters, factories and other parts of the company, as well as fully integrate with the dealer management systems. The Lexus dealers were anxious because the earlier rollout for the Toyota extranet had not gone well. IS did not sufficiently train the dealers on how to use the new system, so naturally they had problems with it.

"We were all so nervous," Farley recalls. "As much as people [in the dealerships] hated the old system [an AS/400 satellite-based system], they were pretty scared about" the new initiative. As it turned out, Farley says, IS heeded the lessons it learned on the Toyota rollout, and the rollout for Lexus extranet in 2002 went much more smoothly.

The Big Squeeze

Starting in 2001, Japanese executives were feeling squeezed because of a tanking domestic Japanese market and lukewarm results from its global units. Toyota Motor Sales USA, though, had increasing sales and market share. Japan needed to rely more on its American division's profits, and from across the Pacific, the parent company started to look more closely at U.S. spending habits.

All domestic departments soon felt pressure from senior management. IS, in particular, was a black box for the executives. "They hadn't a clue on technology," Goltara says. "They just knew it's this big thing."

IS's runaway costs, which had doubled after Cooper's arrival and, at its peak, tripled. And Toyota Motor Sales President and CEO Yuki Funo wanted Cooper to tell him where the ceiling of IS's spend was.

Executives were saying, "Is everything in IT this size and this much of a challenge? My God, that's a lot of money," Cooper remembers.

Meanwhile, she could no longer ignore the distant rumblings from across the courtyard that had worked their way down into the rank-and-file business staff. To them, IS had become an unresponsive, bureaucratic machine.

So Cooper started soliciting informal feedback from a wide range of businesspeople. What she discovered was an accumulation of "very painful projects for both IT and the business," she says. "Clearly there was not enough communication and education on our part."

In late 2002, Cooper hired an outside consultancy to interview TMS's top 20 executives. She wanted their honest opinions of how IS was doing. The results didn't provide all the answers to IS's ailments, but she certainly saw the hot spots. "Parts of [the survey results] were stinging," Cooper says. "But you can't be a CIO and not face that."

That Vision Thing

Cooper speaks in a measured cadence with a Midwestern twang that is actually a blend of accents picked up from her nomadic youth as a military brat. You get a sense that every word that comes out of her mouth has been precisely chosen. There's a carefulness about her. She's also a voracious reader. Her staffers say she is always dropping business magazine articles on their desks and forwarding them e-mails on important IT research.

So no one was surprised when Cooper spent many introspective weeks in 2003 formulating her vision for a new IT department. What she developed was a strategy for a decentralized and transparent IS organization that focused all of its energy on the major business segments.

In summer 2003, she called her senior IS staffers into her conference room and presented her vision on her whiteboard. Some of the managers were excited by the prospect of change; others were less so. "I didn't like it," recalls Goltara. Cooper says she was not surprised by Goltara's visceral reaction. "But it was clear that [his job] was not a sustainable role," Cooper says. Goltara's job as head of all applications and software "was an inch deep and a mile wide," Cooper says, meaning he had too many business-side constituents to serve and too little time to do that.

The first thing Cooper did was set up the Toyota Value Action Program, a team of eight staffers responsible for translating her vision into actionable items for the department and her direct reports. Using the executive's survey results and Cooper's direction, the team winnowed the list down to 18 initiatives-including increasing employee training and development, gaining cost savings, making process improvements, ridding IS inefficiencies and implementing a metrics program (see Metric Heaven). Each initiative got a project owner and a team. Cooper insisted that each initiative have a mechanism to check its success.

The most significant initiative called for improved alignment with the business side. At the heart of this new effort would be a revamped Office of the CIO structureâ¬with new roles, reporting lines and responsibilities.

As part of the rehaul, Cooper took top-flight personnel out of the Data building and embedded them as divisional information officers, or DIOs, in all of the business units. These DIOs are accountable for IT strategy, development and services, and they sit on the management committees headed by top business executives. The DIOs' goal is to forge relationships with tier-one execs (Daly, for example) and tier-two execs (VP-level).

The DIOs weren't alone, though. Business operation managers and relationship managers from IS sat alongside the business folks. "I still believe in managing IT centrally, but it was incumbent on us to physically distribute IT into the businesses," says Cooper. "They could provide more local attention while keeping the enterprise vision alive."

The difference between the previous relationship managers and the new DIOs is that DIOs have complete accountability and responsibility for the vertical area they serve. Goltara, for instance, now heads up a smaller group of internal customers-which includes Toyota, Lexus and Scionâ¬as well as all of the vehicle ordering systems, logistics and dealer portals. "I now have more vertical responsibility, and my responsibilities are deeper, from cradle to grave," Goltara says. "From Toyota to Lexus to Scion, I'm it."

A Little Kicking and Screaming

Change can be scary for anyone, especially during an upheaval of an entire 400-person IS department. Cooper changed the jobs of 50 percent of her staffers within six months, yet no one left or was let go. Some took on new responsibilities; others took on expanded or completely new roles. Cooper says some mid- and upper-level staffers were initially uncomfortable with their new roles, but she says she spent a lot of time fostering a new attitude about the change.

"I dragged them into the conversations kicking and screaming," Cooper says. "But I said to them, 'Unless you think of what it means to change on this level, you will never make it happen."

Similarly, IS senior management held a town-hall meeting to announce the changes and deal with questions. Staff members did express some concerns at that meeting and subsequent monthly staff meetings.

"With any big change, the unknown is always a concern. And it was harder around the areas [of IS] where people had worked for a long time," says Zack Hicks, national business administration manager in IS. "People wanted to know more information about what was going to happen to them. They wanted to know the specifics of their new positions or the changes to their current positions."

The key, Cooper and Hicks say, is that all IS staffers were brought into the development of the new organization early on. Indeed, most IS staffers had played some part in the Total Value Action Program. "We didn't go off into a corner and pop out with a new org chart," Hicks says.

Cooper says the organizational structure today is "almost unrecognizable" to the IS employees she inherited when she first arrived in 1996. Yet there has been very little turnover (Hicks says less than 3 percent a year). One key element was rotating IS people into other parts of the company and bringing businesspeople into IS. Hicks, for one, came to IS from the business side.

For the first time, Cooper also tied part of the senior IS managers' bonuses to their success in meeting the goals of each of their annual plans. These managers are judged on 10 areas and on how well they meet the objectives in those areas-for example, meeting project-based goals (whether the project was done on time, on budget) and operational goals (implementing new governance and portfolio management processes).

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