The Big Fix

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

READER ROI

• Why Toyota's business side hated its IS department
• How Barbra Cooper came up with a plan to save IS
• How IT changed its stripes without retrenchments or great angst

At Toyota Motor Sales USA's headquarters in Torrance, California, 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.

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 enterprise-wide 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 business - and remain in her post - 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 CIOs' 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 disciplines - such as business relationship management and financial management - 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.

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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 chequebook. 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 US 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."

Both Japanese and US management wanted to know more about 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."

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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", above). 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 structure - with new roles, reporting lines and responsibilities.

As part of the overhaul, 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 customer - which includes Toyota, Lexus and Scion - 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."

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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).

To further strengthen the IS-business bond, Cooper chartered the executive steering committee, or ESC, to approve all major IT projects. The committee consists of Cooper; Cooper's boss, senior vice president and planning and administrative officer Dave Illingworth; senior vice president and Treasurer Mikihiro Mori; and senior vice president and coordinating officer Masanao Tomozoe. By exposing IT's inner workings to the business side at Toyota Motor Sales, Cooper hoped that this new transparency would lessen IS's role on IT project vetting and monitoring, and increase business's responsibility.

"Barbra shouldn't be asked to make value judgments about whether or not a project is worth it to the company," Daly says. Project sponsors (with their DIO at their side) have to come back at set intervals, and provide status updates on how each project is doing.

The executive steering committee now controls all of the project funds in one pool of cash, and it releases funds for each project as each phase of the project's goals are achieved. Everyone in the company can look at which dollars were (and were not) going to be spent, the pool's administrators can sweep unused funds out, and other projects can go after those funds. And there are no more spending swings; projects are regularly paced throughout the year.

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Who Moved My Cheese?

Not everyone welcomed the revamped IS department with open arms.

To begin, many business executives didn't want to participate in the new approval process that required them to seek funding through the executive steering committee. Instead, those executives tapped lower-level business sponsors who worked with IS on business case development and implementation. But then, if a project ran into trouble, those high-level "executives would scatter like cockroaches", says Goltara. No senior-level business execs were willing to take IS project responsibility. After about six months of this, Cooper demanded that a higher-level business executive - a corporate manager, VP-level or above - back each IS proposal. Now, the ESC won't approve a project unless that support is there. "There's equal skin in the game now," says Goltara.

Goltara says he no longer has to sell the ideas. "It's the VP of distribution, or the VP of marketing," he says. "I'm sitting there, but [the ESC members] are not even looking at me. The committee members are grilling the business executive to see if he can support the business benefits."

But some business execs are still sceptical of the DIOs and business operations managers living in their offices. Doug Beebe, who took on the DIO role for the Business Support Systems (ERP, HR, finance, purchasing, legal, IS, corporate communications) and the Affiliates divisions (private distributors around North America), was greeted with scepticism by some business managers. Many of his customers felt ignored during the Big Six run-up, and Beebe says he is still working on mending those relationships.

Another challenge for Cooper was dealing with the uncertainty in her IS department after such a massive change. Employees' fears centred around changes in their responsibilities and reporting relationships. Before the overhaul, for instance, Bently Au had been responsible for privacy and security. After the reorganization, disaster recovery was added to his responsibilities. "I was a little bit overwhelmed," recalls Au. He says that middle managers were pretty stretched out during and after the restructuring, but follow-up training has helped him and other midlevel managers make the stretch.

A Gift to the Business

The three DIOs, meanwhile, have been learning on the job - essentially creating their roles as they nestle in with the business. So far so good, several business executives say. Daly says that having Karen Nocket, who took on the DIO role in Toyota Customer Services, in his management meetings has quelled any IS backlash before it can begin. In late 2004, a critical customer service function went down, but Nocket was there to brief the management committee on what happened and how it was getting fixed.

"Having Karen in the management meeting cut off all of the speculation and finger-pointing that sometimes emerges in that situation," Daly says.

Another executive who's a firm believer in IS's new operating model is CFO Doi. "Putting more senior people in as DIOs has been a huge benefit because there's a higher level of respect for individuals that are partnering with you," she says.

Doi's DIO is Beebe, and after spending five minutes with the pair, it's easy to see why theirs is a successful collaboration. They sometimes finish each other's sentences, and there seems to be a layer of trust between them. The duo recently collaborated on a financial planning system that rolled out in early 2005. The existing system was outdated and could not handle the company's growth. Unlike previous years, Doi's finance group worked on the business requirements before selecting a system. "Before, we would have told IS six months into our planning process: 'Hey, you know what we're doing? We've got this great project. And we've already picked a vendor'," says Doi.

This time, after Doi's group solidified the business requirements for the financial planning system, IS got involved. And all of this happened before any presentation to the executive steering committee. Even so, the project was bumpy, Doi says. Her finance staff had a difficult time getting used to the changes in the workflow necessitated by the new software system. And configuring the system so that it worked properly took a lot more time and effort than either IS or finance bargained for.

But because Beebe and his team worked with Doi's team the whole time, Doi says she is confident the bumps will be smoothed out. And she knows exactly whom to go to.

IS has also won more fans in corporate headquarters because of the new metrics. One industry metric all the business execs understand is how much each Toyota vehicle costs to manufacture. Now they know how much IS costs per vehicle, and each division head also knows how much all of his IT costs him. "I have a much better understanding now as these projects are moving through the approval process of how much it's going to cost in total," Daly says.

Toyota Motor Sales' board was particularly delighted with one number: In 2004, IS was able to give back to TMS 16 percent of the costs of running IT projects, a give-back that ran in the multimillions. And Cooper reports that the Japanese parent company is interested in her revamped IS model and wants to apply some of the techniques over there. "Barbra's stock is high," says Daly.

IS staffers now spend a lot more time traversing the courtyard between Toyota Motor Sales' business offices and the Data building. It's a change that the business side welcomes. "Projects are much more thought out now than they ever were before," Daly says.

SIDEBAR: Metric Heaven

A digital dashboard supplies Toyota's business executives with vital statistics about IT

As one of many pain points, the Toyota Value Action Program team identified a strong need for metrics, since there were no formal metrics processes within IS. So Deborah West, who became the metrics business manager during the restructuring, developed a digital dashboard that now illustrates four key areas of the health of Toyota Motor Sales' IS: new investments (project scope, time line, budget and quality), operational performance (how IS is doing on day-to-day activities), financial performance (monthly burn rate of dollars) and workforce management (HR and people aspects). Every metric, however, is specially tailored to the business and put into terms the business understands. The online dashboard is available to all managers, and numbers are updated monthly. "The divisional information officers work with the business managers to help them understand what they are spending their money on," West says.

Another Web-based tool, called Management Financial Reporting, also allows the business to see graphical trend reports on IS projects, forecast reports, variances in IS department costs, fiscal year budgeting reports as well as other financial data on IS department activities.