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The Plan
When in June 1999 he came to Nissan as chief operating officer he was accompanied by a team of thirty French Renault experts. With the aid of a Japanese interpreter (and at the same time trying to learn Japanese) he visited all the Nissan factories worldwide. At the same time Ghosn installed nine Cross Functional Teams to analyze Nissan's problems. These teams had to present their suggestions within a space of three months.
In October 1999, after the teams had made their analyses and had presented their proposals to the executive committee, Ghosn was able to announce his strategic plan for the revival of Nissan in a public presentation. At the same time this plan was simultaneously announced to all of Nissan's 148,000 employees. In his address Ghosn even dared to claim that Nissan would have no debt by 2005.
In short, the plan consisted of the following, long delayed, drastic measures:
1. Fewer and simpler factories. Nissan had too many factories and was using only 53% of its capacity. Therefore a reduction in the number of factories was necessary. 5 factories in Japan were to be closed. A taboo in Japan.
2. Reducing the purchasing costs by 20%, which also included the reduction of the number of suppliers (from 1145 to 600 firms). In his address he said "We are going to help those [suppliers] who are going to help us".
3. Reducing 20% of general expenses, including marketing and administrative expenses.
4. Reducing the number of sales subsidiaries in Japan by 20%.
5. Freeing up currently non-strategic assets and applying these to the core of the business and thus significantly reducing Nissan's general debt. This meant divesting most of Nissan's holdings. For a Japanese company and Japan itself this was a shocking announcement because many historical, sentimental and personal bonds would be cut off. (Ghosn was outraged when he discovered Nissans ownership share in a competitor, Fuji Heavy Industries, manufacturers of Subaru cars.)
6. A total personnel reduction from 148,000 to 127,000 full time employees. Of the total of 20,000 lay-offs 16,500 fell in Japan! The only department which did not suffer from redundancies was R & D which was even allowed to hire 500 extra employees.
Ghosn took care that the plan was very precise, extremely factual and highly quantified. It even mentioned the deadlines set for each of the goals to be achieved. The plan left little room for misinterpretation.
His brutal cost-saving remedies are standard turnaround practice but he was able to make people understand and admit that Nissan had reached a point of no return. He concluded his presentation of the plan with a pledge that if he missed any of the targets, he would resign! The Japanese were impressed by Ghosn's public commitment. Probably because of this courageous statement he had already then conquered the hearts and minds of the Japanese.
The Critical Success Factor
The Critical Success Factor of Ghosn's successful approach in turning around Nissan was the installation of the nine Cross-Functional Teams (CFT) which were composed according to his ideas. The task of a CFT was to come up with recommendations, within its allotted discipline, to the executive committee, within three months. There was no choice because of the state that Nissan was in. There were no barriers to recommendations and this was a prerogative rarely given to middle ranks in Japan. Ideas that were accepted would be executed by the team that formulated them. This ensured not only realistic ideas but also commitment.
Each team consisted of ten professionals from Nissan and Renault with two leaders selected from top executive ranks representing different disciplines with common ground (for example purchasing and engineering). Each team had a pilot - acting as a secretary - who was responsible for the agenda, research and dialogue. A CFT could establish sub-teams which were charged with researching specific issues in more depth. At a certain moment some 500 employees across the company were mobilized in this project. Despite the use of interpreters, internal communication within the groups was, in the beginning, difficult, because of the languages used, Japanese, French and English. To avoid misunderstandings, Ghosn introduced a small company dictionary which contained 40 keywords in English and he further stimulated the French and Japanese executives to master English.
The results
In 1999 Ghosn had dared to claim that Nissan would have no debt in 2005. The way he worked, his personal commitment, his analytical mind, the quality of his strategic plan, the clarity in which he communicated this plan to all levels of the company and the trust he emanated, resulted in the astonishing feat that already one year after his arrival Nissan had a profit of 2.7 billion dollars and showed an operating margin of 10.8%! Now Nissan has even become the world's most profitable major carmaker.
The future of the Alliance
Now, in 2006, Renault has a 44% share in Nissan and Nissan has a 10% share in Renault. Nissan is currently even more profitable than Renault. The logical aim of the Alliance is to cover the entire world with a minimum of duplication.
The basis of this successful Alliance - and the success of Carlos Ghosn - is that it is driven by mutual respect, a belief in the value of partnership and the refusal to play power games. When Nissan was in difficulties, Renault management was prudent enough to resist the temptation to exploit the imbalance of power. Ghosn states that: "Within the Alliance we discuss performance, not scale advantages. Our Alliance is based above all on a continuing quest for better performance. Innovation, quality and cost are important because that is where the game is played".
At the moment there is a constant movement of people from Nissan to Renault and vice versa. This continual movement will be very valuable, Ghosn states. It is clear that Renault people with Nissan experience and Nissan employees with Renault experience are precious assets.
Answering a reporter Ghosn states: "Where will we be ranked in five or ten years? Frankly, I don't know, nor do I think of our goals in those terms. If we turn in a good performance - and I think we've got great potential, both at Nissan and at Renault - and we allow each of the two companies to do the best it can do, there is no limit to what we can accomplish".
When analyzing the success of Mr. Ghosn one will find that he applied many factors mentioned in this book. Like concentration by strategic retreat (shedding non-strategic holdings etc.) to create a stronger basis, or strengthening the motivation of Nissan by stating clear goals and making himself visible. Then, to ensure he gets proper information and ideas, he used aspects of the Auftragstaktik such as being open to new ideas (encourage the initiative). The quotations of Mr. Ghosn listed below give a glimpse of his thought process. Anyway he showed leadership and determination in a remarkable successful way.
In January 2004 the Financial Times released its annual list of the world's most respected business leaders in 2003 and Carlos Ghosn was listed 4th.
After having spent six years at Nissan on April 29 2005 Renault appointed Carlos Ghosn as its CEO. Thus he is now managing two big carmakers 6000 miles apart which sounds like an impossible task. He has a home in Paris as well as in Tokyo between which he shuttles back and forth. "Is he stretching himself to thin?" asks Christine Tierney a reporter from The Detroit News.
Some quotations from Carlos Ghosn:
"Management is an art, not a science; it is especially not an exact science"
"When a company is without a powerful shared strategy, then it becomes uncoordinated, it looses its soul, and its people are left on their own".
"...unity of command is indispensable".
"A CEO has also to be an architect of time. He must choose between long-term management... and the dictates of the short term markets"
"The only battles you are certain to lose are those you don't fight".
"In my view, one of the prime responsibilities of any CEO consists in preparing future leaders to succeed to top-level positions"
"General Electric is a pretty interesting case. GE has generated a lot of leaders, not because the company has always chosen the most talented, but because it has developed them"
"If an ambitious goal seems really impossible to reach, then it destroys motivation instead of creating it. People tell one another it's a lost cause. By contrast, if you set goals that are too conservative, then people think they can be reached without effort and you destroy motivation that way. You have to aim between the two."
"Even the best organizational ideas are worth nothing if they aren't communicated and supported clearly, with a thorough explanation why and how"
"Contrary to what some CEO's think, solving the company's problems doesn't require that you understand them in every detail; what you have to do is to make sure you are surrounded by colleagues capable of analyzing subjects in depth and summarizing them in such a way that you can make, or let someone else make, the most appropriate decisions".
"...a badly handled effort at diversification is a fatal error......you can develop peripheral activities only on the condition that the heart of your business is solid and strong"
A final remark
Even as a 'gayin' Ghosn gained celebrity status in Japan; women adore him and he has even an animated character based on him. Carlos Ghosn the little man from Brazil achieved the status of a superstar.
We stated that a true genius knows his limitations. As well as for Renault as Nissan time will show whether he will be able to continue the success of the alliance.
I am inclined to trust Ghosn because he said: "When you have a good moment, it's good to remember the bad moments, because that helps keep your feet on the ground"
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