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Toyota Tackles an Audacious Goal
Business Journal

Toyota Tackles an Audacious Goal

How to lead an organization through transformational change

by George Borst, President and CEO, Toyota Financial Services

It would be great if leaders could learn everything they need to know before they need to know it. That's rarely the case -- most of us learn on the job, in the thick of it. Sometimes we don't even realize what we've learned until long after the moment has passed. In hindsight, I realize how fortunate I was.

QUOTE: Change is scary, and talking about it can be unsettling...

We were beginning to tackle a major initiative that would significantly change Toyota Financial Services (TFS); simultaneously, I was being exposed to new leadership ideas. I would need these new ideas, along with new skills and abilities, to lead my team to achieve a "BHAG" -- a "Big Hairy Audacious Goal," as Built to Last authors Jim Collins and Jerry Porras call it.

My BHAG was to lead TFS through an expansion of our customer base and product line. TFS offers automotive loans to Toyota and Lexus customers, but if we could add credit cards, mortgages, and loans to Toyota customers and dealers, we could create much more business, profit, and ultimately, loyalty.

But that required transformation in every aspect of the organization -- new people, infrastructure, knowledge, and skills. Some of the changes offered exciting new opportunities, but others presented new problems. In every case, the expansion required new methods of leadership from me -- including framing, communication, and team-building strategies -- to face the upcoming challenges.

Where's the "wow"?

Long before we began implementing the TFS expansion, we faced our first challenge -- inertia. We came up with a solid plan, but there was no real sense of urgency. The TFS management team felt good about our direction, but it was always from 30,000 feet, with no solid implementation plan or start date. We had a five-year medium-term plan and a 10-year long-term plan, but the goals seemed too far in the future and too vague.

Furthermore, there was no "wow" factor. Not only was the plan vague, it didn't resonate with associates. We hadn't explained the overall vision of TFS, such as why we exist and what the world would be like without us. Another omission was that the project focused on the company's goals; it didn't address our employees' need to know what was in it for them, why they should care, and how they could relate.

So, we reframed the project, and I changed the way we presented it. We helped our associates understand how their work makes the world a better place by enabling people to buy safe, high-quality, environmentally friendly vehicles. We focused on their future within the TFS future and noted the positives that come out of growing with TFS.

To develop a sense of urgency and create the "wow" factor, we created a goal of having $1 billion in assets from our new business lines on the books by 2006. This announcement to the organization put us on record and defined a tangible goal that had to be initiated immediately.

Communication underload

There was another challenge: I realized that when I spoke of our goals, I constantly emphasized the need for change. Indeed, the sound bite we wanted our associates to take away was that we were a change-ready, high-performance organization.

But change is scary, and talking about it can be unsettling. I had a sense that my change message was not resonating, as there was still much anxiety in the organization. I shared this concern with my outside coach and received invaluable advice on how to frame this change message.

I started talking not only about the need for change but how some of the skill sets our associates already had could lead that change and make them successful in the new world. And I needed to give the employees credit for the changes they'd already successfully weathered. We had recently gone through a major restructuring, and using it as an object lesson gave associates confidence in their ability to execute change of the magnitude TFS was contemplating. The academic term for this is "reinforcing self-efficacy," but the real-world result was that it reminded us we were capable of handling this transition.

I also needed to be more clear about the competitive strategy behind the vision. My communication about the strategy was too complex until I started focusing on the end result of these initiatives: increased loyalty. What's unique about Toyota Financial Services? Like most financial institutions, we lend money at market rates and provide good customer service -- but what differentiates TFS is that we create loyalty. People who finance with us are 7 to 11 percentage points more likely to buy another Toyota or Lexus. It helped us explain why offering credit cards, mortgages, and banking to our customers was a key business opportunity to develop more relationships with our customer base and increase the likelihood they would buy another Toyota.

Building constituencies

Another change in the way I communicated about the project related to building a constituency. My previous approach was too narrow: My audience was either my direct reports or the entire organization. But what I discovered was that I had many audiences and that talking with them offered me opportunities to build a strong constituency.

So, for example, when someone asked me to speak to one of the smaller departments, I didn't delegate the opportunity unless I had to. I accepted every chance I got, and I used the time to tell a vivid story of what our company can become. I also used it as a chance to gather more associate feedback, because these environments feel safer to employees.

And then I broadened the scope of that too -- I started doing ice cream socials. Twelve people were randomly selected from the entry-level positions of the organization. We set up a Häagen Dazs bar, and I told them the ground rules. First, they were politically protected while they were there; they could discuss what we talked about after the meeting, but they couldn't quote anybody by name. Second, I said, "I don't care what you say to me or how you say it. I just want to know what you're thinking." They asked me tough but fair questions, and after I answered each one, to break the tension, I rated my answer on a scale of 1 to 10. (In some sessions, the associates rated my answers, which really livened things up.) The point of this activity was to develop a constituency, get an idea of what people were really thinking, and explain the direction of the company and my vision for it in a viral way.

High-performance teams

Meanwhile, what was keeping me up at night was the thought that I didn't know what TFS would look like after the transformation. We were creating a bank and a Lexus credit card, and we were getting ready to launch new dealer financial products. How was all this going to fit into TFS?

QUOTE: What was keeping me up at night...

To solve a problem like this, I'd usually call together the Management Committee (six vice presidents), discuss it, and assign roles and responsibilities to each person. However, around this time, I was becoming intrigued with what I was learning about high-performance teams. I realized this might be an opportunity to develop our next generation of VPs -- the average age of the Management Committee members was 50 -- and to mentor some of the best young minds at Toyota.

So I carefully selected seven people who were one or two rungs below the vice president level and asked them to report directly to me on this project. I told them that everything was negotiable; they'd have the resources they need, it was safe to speak up, and nothing would be repeated outside the meetings. But in the end, this high-performance team needed to create an organizational structure plan for the future. I picked people with backbones and a viewpoint, and I reminded them that they'd have to live in the world they created.

I threw a lot at them in terms of expectations and lack of boundaries, and I've been pleased with the progress reports they've given me. Their insights into the issues were refreshing. They developed creative ideas and organizational structures that caused us to think more deeply about how we would go forward. The passionate debates they had were inspiring.

This also gave me a closer look at the next generation of TFS leaders, and I used this opportunity to informally mentor them. These conversations also provided great feedback for me about how our goals and initiatives were being interpreted and implemented further down the management line.

Critical feedback

Speaking of getting insight, at about this time, I met with some of the leading businesspeople in Omaha, Nebraska, who had a wealth of experience with the banking, automotive, and credit card industries. Before the meeting, I sent them each a 15-page paper outlining the TFS vision, mission, values, and strategy.

They came prepared. Now, these weren't Toyota executives who felt the need to choose their words carefully. No, these were successful businesspeople with a strong point of view. They challenged me on several issues, and they brought up an excellent point I hadn't considered: TFS' ability to partner with other businesses. The success of the new products depended on our ability to select compatible partners and manage those relationships well, which we haven't always done. The Omaha group contended that if we didn't do this, the whole plan would break down. They were absolutely right.

I came back from Omaha and had meetings with people at the University of Toyota and in our Human Resources Department; I also met with my high-performance team and the Management Committee. We're now defining our expectations for our probable partners more clearly and asking our key people to attend training sessions and classes on how to make partnerships work.

BHAG ETA

The TFS plan is off to a sound start. We've received approval from the FDIC in San Francisco, Washington, D.C., and the state of Nevada for us to receive an Industrial Loan Charter (ILC), which essentially enables us to provide many of the services a federally chartered bank can provide. Through this ILC, we've been able to further increase the number of relationships we've developed with our dealers and customers in a very short period of time. Already, more than 500 of our 1,200 dealers have either personal mortgages or loans with us. We've already signed up more than 40,000 of our Lexus owners for a Lexus credit card, and a Toyota credit card is only a short way from launch.

The biggest change, however, is to TFS. We are literally transforming who we are and our culture, structure, organization, goals, and metrics. It's an enormous effort, yet we're trying to keep the changes grounded in the Toyota Way. We're keeping the best of Toyota while losing the characteristics that make us slow -- and could ultimately make us mediocre.

And me? Well, I always believed that after 50, your style was fairly locked in. But I believe I've changed. Sure, I know I am still impatient and want things now, but I think I am more open to ideas from different directions and more appreciative of the value of collaboration. I also understand now how important it is for me to know that I am contributing to the quality of life for our associates and the future strength of Toyota.

George Borst is a graduate of the Gallup MBA program, which is offered in partnership with the University of Nebraska-Lincoln. The course requires students to select a business challenge in their organization, and the student is evaluated based on the impact she or he has on the organization. Borst selected the Toyota Financial Services expansion as his project.

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