From the November 2008 issue of Treasury & Risk magazine

Gold AHA Award Winner for Technology

Toyota calls it Genchi Genbutsu. A key principle of the giant automaker's corporate code, the Japanese words roughly translate to "go and see and see for yourself;" as in, travel beyond your confines to find a solution in the real world.

So when Toyota Financial Services' executives demanded improved asset liability management and financial forecasting from treasury and financial planning, both organizations did just that. Risk managers and forecasters metaphorically knocked down walls, and collaborated to frame common objectives, identify problems and develop and execute a solution; in this case, a process that provides decision support for asset liability management (ALM), hedging, financial planning, business-target setting and performance management.

Both sides braced for difficulties. "We had been working in parallel universes with limited interaction, and without full appreciation of each other's roles," says Amit Shroff, corporate finance director, who worked closely with Vanita Aggarwal, national manager of risk and capital. "This challenge required a holistic approach."

Previously, treasury used limited Excel models that did not incorporate the full balance sheet for ALM and interest-rate hedging support. Financial planning and analysis' forecasting relied on decades-old technology and sub-optimal controls to forecast financing margin. "Our goal was to move to a comprehensive current technology platform that met all our needs," says Shroff.

The first step was to implement SQL server technology, BancWare ALM5 from SunGard, so that data, methodology and processes could be aligned. But that was just the beginning. The real challenge was learning each other's cultures, viewing the balance sheet through each other's lenses and developing an appreciation for each others skill set via the frequent collaboration to provide a company level solution. "This was a real game changer," says Shroff.

In the end, both sides--and Toyota's $80 billion lending and insurance umbrella--won. As a result of these cross-functional efforts, Toyota Financial Services exceeded its 2008 forecast finance margin goal of less the 3% to come in less than 1%--compared to an historical modeling variance greater than 5%. They did it on budget and with no additional hires. And, in the process, they created a new metric that the asset liability management committee (ALCO) is using to make decisions. CFO John Stillo was pleased. "Great job in forecasting, particularly when you think about the volatility we experienced this year," he congratulated the team that made it happen.

Shroff and Aggarwal led a team including Shobhan Bhatt, consultant; Dan Bruening, IT manager; Charles Chao, senior financial analyst; Lisa Chao, senior financial analyst; Farouq Jiwani, financial risk manager; Yong Kim, national manager, decision support; Kevin McConahey, planning and control manager; Yuko Yogi, senior financial analyst; and Ted Zarrabi, senior financial analyst.

First, the group consulted The Toyota Way--the automaker's corporate bible, which provided the advice the team needed to go forward. Genchi genbutsu is a key tenant, but not the only one. Associates are urged to pursue relentless reflection, or hansei, and continuous improvement, or kaizen, with the understanding that decisions should be made slowly by consensus, considering all options and implementing decisions rapidly.

Team members met weekly to catch up on other participants' progress and define upcoming objectives. The level of granularity in the data structure and timelines had to be determined jointly due to competing interests, Shroff says. "The mind-set changes."

He should know. Shroff was director of market risk at the start. But he switched sides--though they don't see it that way now--to head up business planning in corporate finance. He says the move was made possible by the cross-fertilization experience.

The seeds continue to grow. "Working under the tent together allowed us to develop relationships that will continue," Shroff says.


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