Innovative CFOs increasingly are focused on finance transformation strategies to enable their companies to succeed in the competitive global marketplace. Rather than emphasizing mundane transactional processing and account analysis tasks, value creation strategies ultimately revolutionize enterprise performance and influence corporate outlook. Toyota Motor Sales U.S.A. (TMS), a subsidiary of Japan's Toyota Motor Corporation, is a leader in finance transformation. It has a unique approach combining the latest business process reengineering and enterprise software techniques with Japanese business methods based on the Kaizen system of continuous improvement and respect for the individual. Learn how TMS group vice president and CFO Tracey Doi has helped manage Toyota's impressive growth and is spearheading efforts to ensure that the growth is profitable and sustainable. The firm's pilot transformation project within the Accounting department is called Driving for Higher Performance. The project involved upgrading to a full suite of Oracle PeopleSoft Enterprise Financial Management applications and is already generating excellent results.

As Published In May 2006

Powering the Finance Transformation
By Anne Ozzimo

Toyota Motor Sales CFO Tracey Doi on the Toyota Way and creating enterprise value

Ask any CFO what's at the top of his or her agenda, and the likely answer will be value creation. According to the CFO Executive Board, a Washington DC-based research organization representing CFOs from the world's top 500 corporations, more than two-thirds of global CFOs are now engaged in finance transformation strategies to move their teams away from mundane tasks like account analysis and transactional processing, toward more value-creating activities that can influence corporate strategy and impact enterprise performance.

The most-successful strategies that CFOs have adopted to transform finance are focused on providing expertise and assurance at the corporate center in tax, treasury, accounting, and other compliance-related processes; embedding finance managers in lines of business to influence outcomes and help drive value creation; and moving toward a shared services or outsourced environment to drive costs out of finance and free up managers to focus on more value-creating activities. Value-driven CFOs have also moved to adopt a single instance of their financial applications, coupled with performance management applications to improve decision support and align finance to corporate strategy.

Transforming Finance at Toyota Motor Sales

Among those companies considered leaders in finance transformation, Toyota Motor Sales U.S.A. (TMS) stands out for its unique approach. The U.S. subsidiary of Japan's Toyota Motor Corporation is revolutionizing its finance operations by combining the latest enterprise software and business process reengineering techniques with decades-old Japanese business practices based on respect for the individual and the Kaizen system of continuous improvement. It's a powerful combination that is being emulated around the world, as companies compete to find ways to differentiate themselves on price, quality, and customer service.

TMS was founded almost fifty years ago as the sales, marketing, and distribution arm of Toyota Motor Corporation (TMC). TMS opened its doors for business in 1957 at a former Rambler dealership in Hollywood, California, selling only 287 Toyopet cars (one of the earliest Toyota cars) and one Land Cruiser during that first year. Almost half a century later, TMS has transformed itself into a US$50 billion force in the American automotive industry, dominating the U.S. passenger car market and winning top awards for vehicle quality and reliability. Although the Toyota and Lexus brands are perennial favorites, TMS has experienced red-hot growth in recent years with new entries into the market like the Prius hybrid vehicle and the Scion line of youth-oriented cars.

Helping manage Toyota's torrid growth is a challenge most CFOs would envy, and no one knows it better than Tracey Doi, group vice president and chief financial officer for TMS. Doi, a California native and Japanese-American, grew up very close to the Toyota campus, never dreaming she'd have the opportunity to be part of the Toyota family. She joined TMS in 2000 as its corporate controller, following finance stints with L.A. Cellular and AT&T Wireless, and assumed responsibility for core accounting, treasury, tax, customs, and financial and business planning with her rise to the CFO post in 2003. In both roles, Doi's main task has been to scale her organization to support Toyota's rapid expansion in North America, yet stay true to Toyota's Lean operating philosophy.

"Toyota's growth has been phenomenal in the United States," says Doi, "but the challenge we face now is how to make that growth sustainable and profitable, while keeping our infrastructure costs as low as possible." It's a challenge as complex as the automotive industry itself, with its dealer networks, finance incentives, and credit and insurance services. In addition to the Toyota organization, Doi's finance team supports the Lexus and Scion divisions that coordinate sales, service, and parts for Toyota's 1,200 Toyota dealers and 210 Lexus dealers across the United States.

Driving for Higher Performance

Soon after she began working for the company, Doi realized that the finance organization at TMS needed to get closer to its divisional business units, rather than just delivering financial information to the parent company in Japan. Having been indoctrinated into the Kaizen system of focusing on people, process, and technology to drive continuous improvement, Doi launched a pilot transformation project within the Accounting department she called Driving for Higher Performance. The cornerstone of that project was an upgrade to a full suite of Oracle's PeopleSoft Enterprise Financial Management applications.

"My vision for the finance organization was to simplify our business processes, align ourselves with our internal customers, and help provide them with the right information to support our growth objectives," recalls Doi. "We chose PeopleSoft to help us do that." Doi opted for a plain-vanilla implementation to take full advantage of the finance best practices embedded in PeopleSoft Financial Management Solutions. She recommends that other CFOs go vanilla as well: "I strongly encourage leveraging the best practices that PeopleSoft has learned from all the other major companies—that's a huge benefit."

Snapshot Toyota Motor Sales U.S.A. www.toyota.com Headquarters: Torrance, California Founded: In 1957 as the sales, marketing, and distribution arm of Toyota Motor Corporation Oracle products and services: Oracle's PeopleSoft Enterprise Financial Management applications, including Accounts Payable, Accounts Receivable, Asset Management, Billing, Cash, Commitment Control, General Ledger, Inventory, and Procurement

The first wave of Doi's efforts to reengineer business processes using Kaizen methodologies and PeopleSoft finance best practices brought impressive results. PeopleSoft's single source of information and automated transaction efficiencies helped drive down U.S. monthly close times to three days—considered world-class by the Hackett Group—and shave financial reporting time to Japan down by 40 percent. TMS has also achieved best-in-class benchmarks in areas like invoice processing: Since 2001, Doi's team has reduced costs per transaction by 40 percent, despite processing 70 percent more invoices.

Doi also used Lean accounting techniques to reorganize all the company's financial data by profit center, so that executives could look at the numbers on a divisional basis. "As a result of that effort, we are now able to zero in on where there are major fluctuations against the plan, or drill down on variances that could impact the forecast for the balance of the year," says Doi. "The way we've structured the financial data using PeopleSoft lends itself to a higher level of profit center accountability."

Enhancing Finance for Value Creation

When she became CFO in 2003, Doi looked to the Toyota Way for inspiration on how best to take her finance transformation initiative to the next level. "I'm very fortunate in that the two main pillars of the Toyota Way—respect for people and Kaizen—have been a good cultural fit for me," she says. "The whole idea that you're never satisfied with the status quo aligns with my feeling that I've never wanted to be in a maintenance-like role."

For Doi, moving beyond the status quo meant finding ways to address new challenges such as compliance with Sarbanes-Oxley and heightened demand in the U.S. for new models like the Prius hybrid and the Scion tC. She drew upon her experiences attending the Toyota Executive Development Program at the Wharton School of Business and her involvement in professional organizations like the CFO Executive Board to launch the next phase of her finance transformation initiative, Enhancing Finance. Doi used the name to symbolize the continual improvements she envisioned in areas like cost reduction, corporate compliance, and value creation.

Providing assurance from the corporate center in areas such as tax, treasury, and accounting is a finance transformation best practice, according to recent CFO Executive Board research. Providing that assurance not only helps deliver the expertise necessary to support the CFO missions of cost reduction and value creation but also provides the oversight necessary to ensure corporate compliance with Sarbanes-Oxley in the U.S. and global regulations like International Financial Reporting Standards.

"We've provided corporate assurance from a controllership perspective by centralizing our foundational accounting activities, defining our corporate policies and procedures, and standardizing our processes with PeopleSoft," explains Anthony Salcido, vice president and corporate controller at TMS. "Examples of how we use Kaizen and PeopleSoft to standardize our processes and drive continuous cost reduction include things as basic as procurement cards, debit cards, and even how we store data."

Salcido and his team point to the success of Toyota's debit card program as a good example of the impact Kaizen and PeopleSoft have had on providing assurance from the corporate center and enabling cost reduction at the same time. "Before launching our debit card program, we used to process checks to our dealers manually," says Salcido. "We've now distributed debit cards to our dealer network and replenish them electronically, cutting way down on processing costs while improving dealer satisfaction. To strengthen our oversight over dealer programs, we track all those debit card transactions through PeopleSoft Accounts Payable and General Ledger."

Moving Forward Favorite car (make & model): Lexus RX400h Favorite travel destination: Kauai, Hawaii What you love about Tokyo: Shopping at Takashimaya department store What you love about Los Angeles: All the wonderful little ethnic restaurants What you carry in the car trunk: Yoga mat (rarely used), collapsible chair to watch kids' sporting events (frequently used) Family: Married to a wonderful husband, with two beautiful kids Education: B.A. in business economics, University of California, Los Angeles Book on the nightstand: The Da Vinci Code, by Dan Brown Guilty pleasure: Big Island Candies' chocolate-dipped cookies

Compliance is also a top priority at TMS and TMC. As a foreign company with American Depository Receipt listings on the NYSE, TMC will be subject to Sarbanes-Oxley compliance in fiscal year 2007. Doi and Salcido have focused finance team members on preparing for that date, using PeopleSoft's embedded best practices and automated controls to drive further process improvements in core compliance activities such as financial reporting, tax, and treasury. An additional half day was shaved off of the company's three-day monthly close, in order to prepare for faster reporting requirements under Sarbanes-Oxley. Additional functionality within PeopleSoft Financials has also been used to strengthen internal controls, notes Salcido: "The only way we can make Sarbanes-Oxley compliance sustainable is to improve our processes and develop the right balance of preventive and automated controls. We look to our PeopleSoft applications to help us in that effort."

Embedding finance managers in the lines of business is another finance transformation best practice cited by the CFO Executive Board and the No. 1 priority of CFOs involved in finance transformation efforts in 2005. Value-driven CFOs use their embedded teams to align finance with corporate strategy, providing decision support to help business units improve their enterprise performance and profitability. It's a practice Doi embraced early on to better support the division heads at TMS and to show management the value that finance can bring to Toyota overall.

Although she reports into the CFO's office, finance manager Kelly Foltz has been embedded with the Lexus division for almost five years, providing support to the division as well as analyzing valuable financial information on Lexus for business planning, budgeting, forecasting, and strategic projects. She relies on Kaizen techniques and PeopleSoft to help move the finance transformation effort at TMS forward. To support process improvements, Foltz and the other embedded members of Doi's finance team use PeopleSoft to obtain information that is timely, accurate, and relevant. "My team monitors the financial performance of the Lexus division and shares that information with Lexus management," notes Foltz. "We use PeopleSoft to efficiently drill into the details of Lexus income and expense trends and the actual-versus-budget performance at various account and project levels."

Beyond Manufacturing Lean across the enterprise In his international best seller The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer, University of Michigan Professor Jeffrey K. Liker attributes Toyota's success to its unique ability to empower employees and engage them in a continuous quest to cut costs, improve quality, and eliminate waste across the enterprise, from the production floor to the boardroom. Toyota's success in Lean manufacturing has spawned a worldwide revolution, with industry leaders like Dell, Caterpillar, and Boeing among the more than 40 percent of U.S. manufacturers now using some form of Lean manufacturing techniques as their path to process improvement. Toyota's Kaizen management principles are also revolutionizing the back-office operations of global businesses, and not just those involved in manufacturing. Liker's book is required reading among India's leading IT services providers, many of whom use Toyota's Lean techniques to streamline back-office processes like payroll, accounting, and call centers. By allocating costs and analyzing profitability by value streams and business processes rather than departments or functional silos, Indian outsourcers such as Wipro have improved productivity by almost 50 percent in some finance processes. Across all industries and nations, companies are discovering that the Toyota Way can help them improve balance sheets, increase productivity, and deliver better customer service.

Foltz also relies on Kaizen to achieve improvements beyond those delivered through automation and standardization. "Using Kaizen within our Enhancing Finance initiative has made me much more productive, forcing me to reexamine all of the activities in my area," says Foltz. "Is there a better way for me to do the sales incentives report? Is there another database that I should use for the marketing report? Kaizen is making sure that I look at everything every day and improve it." Foltz is one of the 96 percent of employees within TMS Finance who have been trained on Kaizen up to this point, with the goal being continuous training for everyone in the organization.

Empowering enthusiastic employees like Foltz with Kaizen and cutting-edge PeopleSoft software is one reason why finance transformation at Toyota Motor Sales has been so successful since Doi first launched the program in 2000. Between 2001 and 2005, general and administrative expenses as a percent of TMS sales declined, even as retail sales in the U.S. grew by 30 percent. In the 2005 Toyota Associate Opinion Survey, the TMS finance division associates scored at a 95 percent engagement level, significantly above the norm of high-performing U.S. companies. Associates with high engagement are stronger, more innovative contributors, and the result is better productivity and ultimately higher profitability.

Despite these achievements, Doi and her team are always focused on the next milestone in their financial transformation process. "I don't think you'd find anybody within the company who doesn't think there's room for improvement," she says. "Our culture is to keep it simple, keep it visible, keep the customer top of mind, and you'll never feel complacent."

Moving Forward

Years from now, business-school students and executives will be reading case studies about Toyota's phenomenal growth. Reflecting its Moving Forward marketing campaign, Toyota has a vision of how it can use technology to make the world a better place, from green technologies designed to boost fuel economy to intelligent systems that help drivers avoid collisions. Because Doi and her team operate in the world's richest and most dynamic car market, they have an opportunity to help Toyota executives worldwide understand and act on consumer lifestyle and technological trends in the U.S. that could influence Toyota's global direction.

For More Information Find out more about the four Oracle Financial Management product lines

As part of that effort, Doi and her team use the transactional data within the PeopleSoft system to create executive dashboards used by division heads and management to identify what those investment opportunities are, going forward. "Using the transactional data we get from PeopleSoft, we provide our executives with timely market information on the risks and opportunities, and where we should be strategically investing for the future," concludes Doi. "My top mission is helping our executives and business partners see where the opportunities for profitable growth are, and I rely on PeopleSoft to help me in that effort."