Here's what's really expected from the finance team.
John Chandler is CEO of Toyota Finance in Sydney. He shares with us what a CEO wants from his CFO and finance team.
The relationship between the chief executive officer and the chief financial officer is one of the most important in any company.
The CEO needs the CFO to share his or her view of the company strategy and then work in concert to implement it. The CFO is responsible for ensuring that the finance team works in alignment with the company's wider strategy.
The expectation, therefore, is that the finance department will work to support the business units rather than "run its own race," as Chandler puts it. And where change is needed, it is the CFO who is expected to make it happen.
“In today's environment of ultra-competitive pressure, constant change and digital disruption, lack of coherence to the same strategy across all parts of the company will become a big contributor to its lack of success,” says Chandler.
This is even more pronounced for a company like Toyota, which set up its own captive finance company in 1982.
By the early to mid-2000s, though, Toyota Finance hit a plateau. It didn't seem to be able to grow further, according to Chandler, who took over as CEO of the finance arm in 2009.
“The relationship with Toyota’s manufacturing and distribution business in Australia is vital, but somehow the finance business had not focused as strongly on this as it should have during this period," he recalls.
Chandler said he realised quickly that part of the tension came from differences in the business model between the motor distributor and the finance company.
The finance business "throws off cash" in regular patterns, as it is primarily a receivables-based business.
That is, the finance business has revenue and costs that are relatively predictable, whereas the motor company is involved in the cut and thrust of everyday business, with specials and run-outs and other offers that change month-to-month.
"It was a completely different culture and different mindset," Chandler says.
"To get the team to understand the difference was really important.
"What we launched in 2009 was a plan to deliberately and forcefully align ourselves with what the rest of the business was doing.
"People don't necessarily want to change. They're used to doing things in a particular way. So [for] the actual move from independence to alignment – for this to be successful – we needed Ian Ritchens, our CFO, to play a big role.”
"Ian, to his credit, recognised the importance of instilling cultural change among his finance team and played an important leadership role. He really put a lot of effort into convincing his team to get behind the changes we were making, despite early concerns among the finance team."
Ask the right questions
One of Ritchens' techniques was to change his own methods, adopting kaizen principles – a Japanese problem-solving approach to achieving continuous improvement that is widely used in Toyota companies.
Chandler explains: "At its simplest level, it starts by asking, 'What is the ideal we’re aiming for?' 'What is our current situation?' and then, 'What is the gap?'
"Then you analyse the root causes for the gap and prioritise solutions for that."
"It sounds really simple, but the Western mind often resists going through that process.
That's because ingrained into every one of us is the instinct to go to the solution first and work back."
"The reality is, if you don't go through the early process you will probably hit on the wrong solution."
Crunch time for the "new" finance team came when the decision was made to run Australia’s first mass market subvented loan campaign, where finance for new Toyotas was offered at 2.9 per cent.
A successful campaign would allow Toyota Finance to demonstrate real value to Toyota and its dealers as the major finance provider for customers looking to acquire vehicle finance. Time was of the essence.
"Part of the urgency was that no one had done it in the mass market before and Toyota wanted to surprise the market," Chandler says.
"It might sound simple but with clunky finance systems, it was a lot of work getting ready and other IT work had to be reprioritised."
The success of the program was both obvious and measurable.
"We'd been supplying finance to maybe 70 per cent of the dealer outlets, and since then we have grown our share to close to 100 per cent, primarily built on a partnership of trust."
Chandler says the outward-looking approach was also applied to other parts of the finance company – for instance, to support fleet operations – to lift the amount of business they were getting elsewhere. It meant the portfolio of loans and leases has grown from A$6.5 billion dollars to over A$13 billion in five years.