Case Study 9-1IT Governance at Toyota

By Rajiv Kohli, William & Mary

On January 1, 2019, Toyota Systems Co., Ltd was formed with a merger of three IT subsidiaries that had been developing digital and communication technologies to support Toyota's push into connected cars.i But the foundation for the transformative role of IT at Toyota was laid by Barbra Cooper, the first Chief Information Officer (CIO) of Toyota Motor Sales, long before this merger.

When Barbra Cooper came to Toyota Motor Sales in 1996, Toyota's IT was in trouble. Though Cooper had developed an industry reputation as a turnaround strategist, she was surprised to find that IT at Toyota was "1970s-like." Business units were buying their own technology because IT couldn't meet business needs. Moreover, IT was determined to maintain an IBM-mainframe environment. Basic IT disciplines such as business relationship management, financial and project management, and even security for the building that housed the mainframe were largely absent.

"No one understood the cost of delivering or even supporting IT," she says.ii IT personnel were more like order takers rather than strategic partners. Business executives short-circuited IT project approval and funding process by making deals with IT executives and little thought to architecture and data standards, system integration, or business benefits.

In the first three years, Cooper ramped up six large core projects in an effort to bring the enterprise up to date in such areas as dealer systems, warranty, vehicle distribution, and an ERP system for the back office. The first few years of focusing on replacing outdated applications and adding entirely new functionality for the business, by default, created a project-centric operating model for IT and it was time to address a more balanced structure.

A new IT strategy evolved that rebalanced the business model to be both highly efficient and cost effective at operating IT and fostered a trusted partner relationship between IT and business built upon a culture of accountability and deep strategic understanding. This laid the foundation for business leaders to work closely with IT to experiment with digital technologies embedded deeper into the vehicles and to examine how customers would interface with such technologies.

The key mechanism to building trust and shared accountability was the appointment of an experienced and senior-level IT executive (Divisional Information Officer-DIO) into each business division along with staff to manage the day to day needs of the business. DIOs operated in a matrix governance structure in which they reported to Cooper, yet engaged with senior business executives as trusted partners in planning.

A push toward Enterprise Architecture resulted in a disciplined set of standards across the divisions in key areas. As long as business divisions adhered to the standard frameworks for data, infra-structure (hardware, operating systems, and network integration), and security, they were free, and even encouraged, to innovate on behalf of their business division's unique requirements. The DIO role transformed Toyota IT's to that of a "consultant."

To build greater transparency into the corporate IT process and to better understand the cost drivers, Barbra Cooper promoted a methodology and an organizational structure to tame the business leaders' historical pattern of "free range" IT demand, often by politicizing it. Cooper chaired an Executive Steering Committee (ESC) to review and approve all major IT projects requested by the business. The ESC members were Toyota executives: Chief Operating Officer, Chief Financial Officer, and Chief Coordinating Officer (highest ranking Japanese representative in the North American company).

The ESC controlled and released project funds for each project as each phase of the project's goals were achieved. This "cash flow" strategy allowed everyone to see where money was being spent, but the methodology didn't allow one large project to hold tens of millions of dollars hostage for several years while a project evolved. If a particular project was slowed down or even stuck due to unforeseen challenges, the administrators could "sweep" the unused funds for that project phase back into the pool and other projects could compete for those dollars. This served as an incentive for project managers and business stakeholders to have strong project governance and oversight. It also eliminated spending peaks and valleys during the fiscal year and established a "rolling three year" budget across fiscal year boundaries since projects needed to be flexible and avoid a formal "real-location" due to a budgetary year-end.

In 2010, Toyota Motor Sales Company appointed Zach Hicks as CIO, who reported to Barbra Cooper, now CIO of Toyota Motors North America (TMNA). Together, Cooper and Hicks expanded digitization and created an organizational structure as well as adoption of cloud technologiesiii and established mechanisms to gather, secure, and leverage customer-centric data. Cooper retired in 2012 and Hicks was promoted to CIO of TMNA. Building upon the governance model of two decades ago, Toyota Connected North America was established in 2016, with Hicks appointed as the CEO, to focus exclusively on developing fast cycle-time connected vehicles and to develop selfdriving cars with partners such as Pizza Hut and Avis Budget Group.iv

As TMNA's Digital Transformation & Mobility, an umbrella organization for futuristic technologies that includes Toyota Connected, embarks upon developing new forms of mobility services and autonomous driving technologies, the IT governance that Cooper began in 1996 served as the foundation for IT-Business partnership that has made this journey possible.

Discussion Questions

1. Describe the advantages and disadvantages of TMS's move to a "hybrid" decentralized IS structure?

2. How did the new structure change decision rights? How did it change accountability for IT project success?

3. Why, in your opinion, would business executives shy away from the new approval process?

4. In your opinion, will Cooper's demand that each project be backed by an executive, solve the problem? Explain.

5. Which leadership competency is the most valuable to have in order to take on this level of transformational change?