Cultivating a Culture of Cross-Functional Teaming and Learning at CarMax

CarMax, the largest retailer of used cars in the United States, has always sought to transform how vehicles are bought and sold in America by making the experience transparent and stress free, according to chief information officer Shamim Mohammad. MIT Sloan Management Review guest editor Gerald C. Kane and contributor Anh Nguyen Phillips spoke with Mohammad about how CarMax is continuously evolving its culture of employee empowerment through digital transformation.

MIT Sloan Management Review: What does digital transformation mean or look like at CarMax?

Shamim Mohammad: With customer expectations evolving in a rapidly changing digital environment, CarMax’s digital transformation is revolutionizing car buying yet again. Our strategy is all about developing customer-facing and associate-enabling technologies, and leveraging rapid product innovation to deliver an exceptional customer experience.

MIT Sloan Management Review: How does CarMax’s digital strategy relate to the overall company strategy?

Shamim Mohammad: As an omnichannel retailer, our digital transformation isn’t solely driven by IT, or marketing, or product. It’s a CarMax strategy that requires all parts of the business to work together to deliver a simple and seamless customer experience. It’s been critical to break down the silos between departments to drive customer-centric innovation and business results.

Can you explain how your cross-functional team structure relates to digital transformation?

Mohammad: In a world that’s quickly evolving, it’s important to set up nimble, cross-functional product teams that can iterate quickly on ideas.

At CarMax, we run principles of agile development where product teams have shared business objectives. In our teams, there are three non-negotiable roles: One is the product manager, who is usually not from IT, and they operate like the CEO of the product team. Then you have a lead developer or engineer who is from IT, and a UX [user experience] designer.

They are empowered since the leadership team never tells them how to solve a problem, but what the problem is and the KPIs [key performance indicators] to work against. This approach allows for increased feedback, a significantly faster pace of development, and trial and error to ultimately arrive at a solution that is best for customers and associates. We’ve also found teams take smarter risks and are more creative in how they meet their objectives.

If you don’t have these fully integrated teams, then take a hard look and consider if you’re set up for a successful digital transformation.

How long do the teams usually last?

Mohammad: These product teams are durable, and we try not to modify the core teams, so they can continue to iterate and learn as a unit.

Which skills are most important for people working in this type of environment?

Mohammad: What’s most important is not necessarily specific technical skills, but some key soft skills. It’s important for the product manager to have a balance of business acumen and the following key skills: leadership, negotiation, team building, and talent management. With an empowered team, you’ll also want a leader with a broad base for creative decision-making.

Then it’s also critical that teams have the right engineers and developers to enable the technology to deliver these products. To recruit and retain the best talent, you also need to have the best technology on which they can work.

The one thing that every person on the team must have is curiosity. We’re encouraging these agile product teams to learn, explore, and discover how to best deliver against business objectives and exceed customer expectations. In this type of environment, it’s important to develop a culture that’s not afraid of failure and is motivated by constant learning to enhance the next iteration of the product.

Can you give me an example of how you cultivate this culture of learning?

Mohammad: Online finance is a recent example of a product that we developed for customers to receive a finance prequalification in the privacy of their own home, then complete the transaction quickly in store. Before the online finance product team began their testing, they had several hypotheses that they felt would solve a customer need. But when they put their solution in front of the customer, it was not successful. The team learned from that early failure and feedback, and continued to iterate and refine their approach. After a series of adjustments and live testing, the team was ultimately able to launch a product nationwide that was widely successful and better solved customer needs.

Our teams are always learning and adapting based on different inputs that are coming their way. These inputs could be coming from customers, from associates, or from their own analysis.

What leadership skills are important to lead in this type of digital environment?

Mohammad: The product manager needs to be well balanced with tremendous business acumen, financial savvy, and a strong understanding of the key metrics that they are targeting.

With new information and customer preferences evolving quickly, even daily, we expect every associate to focus on learning and continuing to evolve their skill sets. Whether that’s achieved through self-guided research, reading, benchmarking across other companies, or completing the training offered onsite at CarMax, we have a culture of continuous improvement.

How has digital transformation changed the culture of CarMax?

Mohammad: CarMax has always had a very collaborative culture, but our digital transformation is taking it to the next level.

The digital transformation has increased transparency and visibility into what technology means and how it operates across the organization. Prior to this transformation, IT completed projects in more of a silo, then rolled them out to the other parts of the company for implementation. Now, everyone from marketing, IT, product, and the stores are involved from beginning to end and have shared responsibilities and objectives, which is a fundamental shift in accountability and how we measure success.

There’s also an increased level of communication between the teams. Every week at our Digital Innovation Center and our home office, we host open houses for teams to share their work in an open forum. This drives a tremendous amount of cross-company awareness and communication. This is also very empowering for associates. For example, an analyst who may just have graduated from college has the opportunity to present their research to the CEO or CMO and others across the organization. This incredible value for the associate and the company cannot be understated.

So would you say some of these initiatives grew with the culture change, or did you specifically do something to sort of take the culture up to the next level?

Mohammad: When we started this journey, we didn’t have an exact blueprint for how the culture was going to evolve. But like our agile product teams, we are constantly evaluating how our teams can become more effective and make better decisions. Through many incremental changes, we have arrived at a culture of increased associate empowerment and a passion for innovation. When I look at today versus where we were two years ago, it seems like a massive change — but if I consider the incremental changes, it really was a natural evolution along the way.