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 / Summer 2009 / Issue 55(originally published by Booz & Company)


Toyota’s IT Transformation

The information systems group at Toyota Motor Sales USA Inc. has moved from an "order-taker" role to "next-generation demand management” in an effort to meet overall corporate needs.

This article was written with Karen Nocket.

The information technology organizations in many companies are trying to evolve from an “order-taker” role of merely fulfilling requests to the role of enabling the business. In accomplishing this evolution, companies must transform the “demand management” function. Traditional demand management involves waiting for handoffs from the business side — ideas for projects that individual units in the company think would improve their operations. Although often valuable, these ideas are not necessarily aligned with the needs of the company or matched against project proposals from other business units in such a way that system development and implementation are efficient and scaled throughout the organization.

By contrast, at Toyota Motor Sales USA Inc., the information systems group (where we work) has been moving toward a new model that we call “next-generation demand management”: an effort to meet overall corporate needs rather than narrower project-by-project demands. With this approach, we have become partners with the business units, helping to mold the demands throughout the organization so that redundancy is eliminated and only systems that match the strategic direction of Toyota are produced. Through this campaign, we are leveraging IT’s existing “silo-agnostic” position to deliberately change its role in the company so that it is managing and completing projects that produce business value.

The seeds for this transformation were planted in the 1970s. That was when Toyota began to expand out of Japan into new markets around the world, with the technologies suited for the business in those days. Although new IT systems were needed to support growth throughout the company, there was no master organization-wide plan to create and deliver them. Every functional group could be as creative as it wanted to be, and IT treated each business unit project as an independent effort, designing the solution in isolation. The result was a lot of duplicate infrastructure and increasing maintenance costs.

With many projects under development and limited resources, we began to rely on contracted outsourced help. This was expensive, and, worse still, the contractors became the subject matter experts, gaining critical knowledge about how to link IT functions to the needs of the business while the Toyota IT staff plowed ahead with the next round of basic projects. We were outsourcing not only the work but the valuable skills and know-how that we should have nurtured internally. Rather than nurture them, we let them atrophy.

Even though we spent years developing and advancing the notion of an enterprise architecture function within IT and had all the requisite standards, strategy, and philosophy to achieve a more consistent and integrated approach, the business at large lacked the structure to benefit from these efforts. All IT projects at Toyota were business unit–specific and, in fact, one-offs within those business units.

As IT professionals, we were responsible for changing this cycle of behavior. We began by conducting a performance audit in 2002. We confirmed what we already knew: Costs for IT projects were climbing, implementations had not been ending soundly, and the business leaders perceived IT as a “black box” that funds went into. The audit also showed that many of the problems were upstream. That is, the troubles began with individual business units’ inability to articulate what they needed; they did not know which systems requirements would generate real value, and they did not align their needs with the overall strategic direction of the company. These upstream issues were as much a problem as any concern within the IT department.

It became clear that we needed to create a new operating model. IT would have to help the business units place their wish lists in the context of the needs of the enterprise — all while keeping the business running.

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