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The Global Leadership of Carlos Ghosn at Nissan

John P Millikin • Dean Fu

did not try to learn too much .ibout Japan before coming, because I ditin't want to have too many prcconcci\cd itfciis, I want- ed to djsco\er Japaji by being in Japan with Japanese people."'

"Well, I think I am a practical per- son. I know I may tail at any moment. In my opinion, it was extremely helpflil to be practical [at Nissan I, not to be arrogant.

and to realize that I could fail at

any moment."

Carlos Ghosn, 2002^ i

lNTRODUCTlOW

Nissan bad been incurring loss- es for seven of tbe prior eigbt years when, in Marcb 1999, Carlos Gbosn (pronounced

* A tcjcbinn note Ibr tliis ca^c siuity i.s avjilabic thmi IIK- .lurhnr.

' "Drcisiiin Making ami Coord inai ion Strui:uiri;s oftliL" .•Mliaiict," 20 Ottober 1999, http://^^'^^"w.nis.'ian- glohal.coni.

^ "Nissan Prtsidfiit Carlos Ghosn Talks abiiut His Company's Recovery," Nikkd Bumiea, 20 May 2002, hi tp;//nb.nikkeibp.ai.jp/Arricic/I142.

Copyrighi © 200J1 Thundtrbird, The American GratUiacc School of Imtrnational Management, All rights reserved. This case was prepared by Professor John P. Millikin and Dean Fu, Research Assistant, with as.sis- tancc trom Koichi Tamura for the purpose ot'classroom discussion only, and not to indicate either ertcctivc or inctVcctive managemeni.

Dr. John R Millikin is the academic director for the Global Strategic Human Resources program in Thunderbird Executive Education and a visiting professor of management. Prior to joining Thunderbird, he was vice president of human resources at Motorola. He has also served as a national vice president of the Soci- ety for Human Resource Management [SHRM], His PhD is from Arizona State Uni- versity, where be also serves as a faculty associate [[email protected]). Dean Fu, who received his MBA from Thunderbird in 2003, is an international devel- opment professional working in Bosnia and Herzegovina on a LJSAIO project regarding process and system improvement projects with tan governments at the municipal level. He has also worked on similar projects in Kazakhstan. Prior to international work, Mr. Fu led process and system improvement teams at Encsson, Inc. and at medium-sized commercial printing companies in the United States ([email protected],com],

IliimderWrd Internatiimal linsiness Review, Vol. 47(1) 121-137 " January-He brnary 2005

' 21)1)5 Wiley Periodlcais, Ine, • Published online in Wiley InterScience [www,inicrscicnce.wiley,com),

IKM: lO.I0O2/tic.2O043

121

John P Millikin • Dean Fu

Ghosn boldly

pledged to step

down if Nissan

did not show a

profit by March

2001...

GOHN) took over as the first non-Japanese Chief Operating Officer of Nissan. Many indus- try analysts anticipated a culture clash between the French lead- ership st>'le and his new Japan- ese employees. For these analysts, the decision to bring Ghosn in came at the worst pos- sible time because the financial situation at Nissan had become critical. The continuing losses were resulting in debts (approx- imately $22 billion) that were shaking the confidence of sup- pliers and financiers alike. Fur- thermore, the Nissan brand vvas weakening in the minds of con- sumers due to a product portfo- lio that consisted of models tar older than competitors. In fact, only four of the company's 43 models turned a profit. With lit- tle liquid capital available for new product development., there was no indication that Nissan would see increases in either margin or volume of sales to overcome the losses. The next leader of Nissan was either going to turn Nissan around within two to three years, or the company faced the prospect of going out of business.

Realizing the immediacy of the task at hand, Ghosn boldly pledged to step down if Nissan did not show a profit by March 2001, just two years after he assumed duties. But it only took eighteen months (October 2000) for him to shock critics and supporters alike when Nis-

san began to operate profitably under his leadership.

BACKGROUND OF CARLOS GHOSN

Born in Brazil in 1954 to French and Brazilian parents, both of Lebanese heritage, Carlos Ghosn received his universit)' education in Paris. Following graduation at age 24, Ghosn joined the French firm, Compagnie Gcnerale des Etablissements Michelin. After a few years of rapid advancement to become COO of Michelin's Brazilian subsidiary, he learned to manage large operations under adverse conditions such as the runaway infiation rates in Brazil at that time. Similarly, as the head of Michelin North America, Ghosn faced the pres- sures of a recession while putting together a merger with Uniroyal Goodrich. Despite his successes in his 18 years with Michelin, Ghosn realized that he would never be promoted to company president because Michelin was a family-run company. Therefore, in 1996 he decided to resign and join Renault S.A., accepting a position as the Executive Vice President of Advanced Research& Development, Man- ufacturing, and Purchasing.

Ghosn led the turnaround initia- tive at Renault in the aftermath of its failed merger with Volvo. Because he was so focused on increasing margins by improving

122 Thunderbird International Business Review • January-February 2005

The Global Leadership of Carlos Ghosn at Nissan

cost efficiencies, he earned the nickname "Le Cost-Killer" among Renault 's top brass and middle management personnel. Three years later, when Renault formed a strategic alliance with Nissan, Ghosn was asked to take over the role of Nissan COO in order to turn the company around in a hurry, just as he had dotie earlier in his career with Michelin South America. For Ghosn this would be the fourth continent he would work on, which combined with the five languages he spoke, illustrates his capacity for global leadership.

BACKGROUWD OF IMISSAN

In 1933, a company called Jidosha-Seizo Kabushiki-Kaisha (which means "Automobile Manufacturing Co., Ltd." in English) was established in Japan. It was a combination of several earlier automotive ven- tures and the Datsun brand which it acquired from Tobata Casting Co., Ltd. Shortly there- after inl934, the company name was changed to Nissan Motor Co., Ltd. After the Second World War, Nissan grew steadily, expanding its operations global- ly. It became especially successful in North America with a lineup of smaller gasoline efficient cars .\nd small pickup trucks as well as a sports coupe, the Datsun 280Z. Along with other Japan- ese manufacturers, Nissan was successtlilly competing on quali-

ty, reliability and tiiel efficiency. By 1991, Nissan was operating very profitably, producing four of the top ten cars in the world.

Nissan management throughout the 1990s, however, had dis- played a tendency to emphasize short-term market share growth, rather than profitabilit)' or long- term strategic success. Nissan was very well known for its advanced engineering and technology., plant productivit>', and quality management. During the previ- ous decade, Nissan's designs had not reflected customer opinion because they assumed that most customers preferred to buy good quality' cars rather than stylish, innovative cars. Instead of rein- vesting in new product designs as other competitors did, Nissan managers seemed content to continue to harvest the success of proven designs. They tended to put retained earnings into equity of other companies, often suppli- ers, and into real-estate invest- ments, as part of the Japanese business custom of keiretsu investing. Through these equity stakes in other companies, Ghosn's predecessors (and Japanese business leaders in gen- eral) believed that loyalty and cooperation were fostered betu'een members of the value chain within their keiretsu. By 1999, Nissan had tied up over $4 billion in the stock shares of hun- dreds of different companies as part of this keiretsu philosophy. These investments, however,

After the Second

World War, Nis-

san grew steadi-

ly, expanding its

operations

globally.

Thundcrbird Imcriutional Business Review • January-Febfuary 2005 1S3

John R Millikin • Dean Fu

Renault wanted

a partner that

was savvy and

established in

the North Ameri-

can and Asian

markets.

were not reflected in Nissan's purchasing costs, w îich remained between 20-25% high- er than Renault's. These keiretsu investments would not have been so catastrophic if the Asian finan- cial crisis had not resulted in a devaluation of the yen fi^om 100 to 90 yen = 1 US dollar. As a result, both Moody's and Stan- dard & Poor's announced in February 1999, that if Nissan could not get any financial sup- port from another automobile company, then each of them would lower Nissan's credit rat- ing to "junk" status from "investment grade."

Clearly, Nissan was in need of a strategic partner that could lend both financing and new manage- ment ideas to foster a turn- around. In addition, Nissan sought to expand into other regions where it had less pres- ence . In March 1999, Nissan President and Chief Executive Officer Yoshikazu Hanawa found such an alliance opportunity with Renault, which assumed a 36.8% stake in Nissan, allowing Nissan to invest $5.4 billion and retain its investment grade status. Hanawa was also able to get Renault's top management to agree to three important princi- ples during negotiations:

1. Nissan would maintain its company name

2. The Nissan CEO would con- tinue to be selected by the Nissan Board of Directors

3. Nissan would take the princi- pal responsibilit)' of imple- menting a revival plan.

It was actually Hanawa who first made the request to Louis Schweitzer, CEO of Renault, to send Carlos Ghosn to Nissan to be in charge of all internal administration and operations activities.

Why would Renault agree to all of these conditions in this bailout of Nissan? Renault was also looking for a partner, one that would reduce its depend- ence on the European market and enhance its global position. In 1997, 85% of Renault's rev- enue was earned in Europe, 32.8% of which came from its domestic (French) market. Renault also had high market share in Latin America, especial- ly Brazil. On the other hand, Nissan has the second largest market share in Japan and a strong market share in North America (see Appendix 2, Nis- san' market share). Nissan lacked, however, market share and distribution facilities in Latin America. By creating the new alliance, Nissan and Renault expected to balance their market portfolios and become more competitive. Renault wanted a partner that was sa\'\7 and estab- lished in the North American and Asian markets. Further- more, the merger of Daimler and Chrysler in May 1998 gave Renault a sense of urgency

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The Global Leadership of Carlos Ghosn at Nissan

about finding a partner to com- pete more effectively on a global scale. As a result, Renault and Nissan agreed to a Global Alliance Agreement on March 27, 1999, with Carlos Ghosn designated to join Nissan as COO.

ADDRESSING WATIOIMAL CULTURE ISSUES

When Ghosn went to Japan, ho knew that industry analysts were reasonable in doubting whether a non- lapanese COO could overcome J apanesc cultural obstacles, as well as effectively transform a bureaucratic corpo- rate culture. Ghosn was going to have to address several Japanese cultural norms in order to trans- form the company back into a successfi.ll one.

The following are some of the issues he faced.

Consensus Decision-Making and its Relationship to Career Advancement Since the war, the Tapanese busi- ness culture for decades had been producing leaders who were very good at reaching con- sensus and working cooperative- ly within a department (a derivative of the mura-shakai consensus based society system). Thus, the conventional wisdom in Japan was that conscientious- ness and cooperation were the key elements to maintaining

operational efficiency and group harmony. This paradigm often resulted in delays to the decision making process in an effort to achieve consensus.

As an unintended consequence of the emphasis on conscien- tiousness, Japanese professionals tended to avoid making mistakes at all costs in order to protect their career growth. This can result in frequent informal infor- mational meetings and coalitions (called nemaivashi) that occur between professional depart- ments prior to a decision-making meeting. Through these infor- mal contacts, participants try to poll the opinions of other partic- ipants beforehand in order to test which positions have the strongest support so that their position is aligned with the posi- tion most likely to be influential. Then, at the time for a meeting with their superiors, participants tender their aligned positions one by one to the ultimate deci- sion maker with the feeling that if the decision maker agrees to the consensus, then no one indi- vidual can be identified later for originating a faulty position if that decision results in failure. Rules and conformity replace process.

In Japan, age, education level, and number of years of service to an organization are key fac- tors determining how an employee moves up the career ladder. Due to a cultural tenet

...Japanese pro-

fessionals tend-

ed to avoid mak-

ing mistakes at

all costs in order

to protect their

career growth.

riuintkrliird I nttrnational Biisint!» Review • January-l'cbruary 2005 135

John P Milhkin • Dean Fu

The consensus

was that other

departments and

other employees

were creating

the company's

problems.

called Nennkou-Jyoretn, placing power in the hands of the most knowledgeable and experi- enced, promotions are normally based on seniority' and educa- tion. In practice, the only things that usually thwart these time- and education-based promo- tions are performance errors that reflect poorly on the team and any behavior that causes disharmony among team mem- bers. When something goes wrong, the most senior person accepts responsibility while accountability at lower levels is diffijsed.

This part of Japanese culture had been usefiil to reinforce control over operations and enhance quality and productivi- ty. During the postwar period of the company's growth, it con- tributed to great working rela- tionships among everyday team members at Nissan, but these norms, by the mid 1990s, were actually impeding the compa- ny's decision making. Specifical- ly, these cultural norms severely hampered risk-taking and slowed decision making at all levels. Existing teams of employees routinely spent much time on concepts and details, without much sense of urgency for taking new action, due in part to the risks involved with actions that could result in fail- ure. This mindset contributed to a certain degree of compla- cency with market position and internal systems at Nissan,

undermining the company's competitiveness.

In a related cultural issue, as employees became increasingly aware that Nissan was not per- forming well, the lapanese cul- ture of protecting career advancement led to finger point- ing rather than acceptance of responsibility. Sales managers blamed product planning. Prod- uct planning blamed engineer- ing. Engineering blamed maiiutacturing and so on.

Wben Ghosn first arrived in Japan, he was surprised to learn that, w hile most of the employ- ees sensed that there was indeed a problem within the company, they nearly always believed that their respective departments were operating optimally. The consensus was that other departments and other employ- ees were creating the company's problems. Ghosn also learned that many of the employees of the company did not have a sense of crisis about the possi- bilit>' of bankruptcy at Nissan because of the Japanese business tradition, which implied that large troubled employers would aiways be bailed out by the gov- ernment of Japan. This view was based on the long standing partnership between the gov- ernment and the major busi- nesses to ensure employment and expand exports to world markets. The businesses for their part were committed to

126 Thundcrbird Internationa! Business Review • January-tcbruary 2005

The Global Leadership of Carlos Ghosn at Nissan

providing lifetime employment to their workers.

ADDRESSING CDRPORATE CULTURE ISSUES

Not only were there Japanese cultural norms for Ghosn to con- tend with, but there were proce- dural norms at Nissan, both formal and informal, which were holding the company back. First, once decisions were made at Nis- san, rhe follow-up during imple- mentation was often not effective. This was not usually the case in other Japanese com- panies. Second, top management had developed tunnel vision regarding its strategic focus on regaining market share, as opposed to restoring margin per unit sold. This was in part due to a focus on what was best for maintaining the company's size and iis employees, i.e. more units to produce, rather than what was best for customers (newer, better products to meet market demands) or for investors (high- er earnings and higher stock value). Additionally, in an unusu- al break from lapanese business culture, there were communica- tion problems between the layers of the organization. Staffs seemed relatively uninformed of key corpt>rate business decisions, while top management seemed out of touch with what policy execution issues were present at the middle and lower manage- ment levels.

Ghosn realized that Nissan's flm- damental problem was the lack of vision from management and the persistent problem of ignor- ing the voice of Nissan's cus- tomers.̂ ^ Furthermore, he identified the following prob- lems at Nissan:

1. Lack of a clear profit orienta- tion

2. Insufficient focus on cus- tomers and too much focus on competitors

3. Lack of a sense of urgency 4. No shared vision or common

long term plan 5. Lack of cross-functional,

cross-border, cross-cultural lines of work.*

CARLDS GHDSN'S PHILDSD- PHIES DF MANAGEMENT

Despite all of his doubters, Ghosn embraced the cultural dif- ferences betwee[i the Japanese and himself, believing fervently that cultural conflict, if paced and channeled correctly, could provide opportunity for rapid innovation. He felt that by accepting and building on strengths of the different cul- tures, all employees, including Ghosn himself, would be given a chance to grow personally

Despite all of his

doubters, Ghosn

embraced the

cultural differ-

ences between

the Japanese

and himself...

, p. 155, Carlos Ghosn (3001) (Aiigusi 10. 2002).

l2OOO)(Aiigu«8, 2002).

rhiindcrbird intcniationjJ Business Review • Janiiary-tebruary 2005 137

John R Millikin • Dean Fu

An organization

can only be

effective if fol-

lowers believe

that what the

leaders think,

say and do are

all the same

thing.

through the consideration of dif- ferent perspectives. The key, he reiterated many times, was that no one leader should try to impose his/her culture on another person who was not ready to try the culture with an open mind and heart. In this vein, Carlos Ghosn came to Japan knowing that if he were to start imposing reforms by using the authority of his company position, rather than work through the Japanese culture, then the turnaround he sought would likely backfire.

What he did bring with him was three overriding principles of management that transcended all cultures. And he used these as a backdrop to give employees structure as to their efforts of determining the proper reforms. These three principles are as follows:

1. Transparency—an organiza- tion can only be effective if followers believe that what the leaders think, say, and do are all the same thing.

2. Execution is 95% of the job. Strategy is only 5%—organi- zational prosperity' is tied directly to measurably improving quality, costs, and customer satisfaction.

3. Communication of company direction and priorities—this is the only way to get truly unified effort and buy-in. It works even when the compa- ny is facing layoffs.

THE FIRST MONTHS FISI JAPAN AND THE CROSS- FUNCTIONAL TEAMS

When you get a clear strategy and communicate your priorities, it's a pleastire working in Japan. The Japanese are so organized and know how to make tiie best of things. They respect leadership.

Even though Ghosn expected that his attitude toward cultural respect and opportunism would lead to success, Ghosn was pleas- antly surprised by how quickly Nissan employees accepted and participated in the change of their management processes. In fact, he has credited all of the success in his programs and poli- cies {described below) to the willingness of the Nissan employees at all levels to change their mindsets and embrace new ideas.

Perhaps it was the way he started that set the foundation among the employees. He was the first manager to actually walk around the entire company and meet every employee in person, shak- ing hands and introducing him- self. In addition, Ghosn initiated long discussions with several hundred managers in order to discuss their ideas for turning Nissan around. This began to address the problems within the

*• Middlcton. John. E.xpre.ssE\cc,com, h t l p ; / / \v\\'W.(;xprL'ssc\fc,wili-y.i:(>iTi/cc/cc()7.0l.07/scctO. liinil, .Vquircdon Internet, 7 August 2002,

128 Thuiidcrbird Inttniatitinal Business itevicw • (anuiirv-Fcbniarv 2005

The Global Leadership of Carlos Ghosn at Nissan

vertical layers of management by bringing the highest leader of ihc company in touch with some of the execution issues facing middle and lower management. It also sent a signal to other exec- uti\es that they needed to be doing the same thing.

But he did not stop there. After these interviews, he decided that the employees were quite ener- getic, as shown by their recom- mendations .\nd opinions. With this in mind, Ciho.sn opted to develop a program for transfbr- [liAtion which relied on the Nis- san people to make recommendations, instead of hir- ing outside consultants. He began to organize Cross-Func- ti(inal Teams to make decisions for radical change. Part of his interest in doing this in-house was to address the motivation and horizontal communication issues that he encountered throughout the organization. He felt that if ilic employees could accomplish the revival by their own hands, then confidence in the company as a whole and motivation would again flourish. In a sense he was making it clear that he was also putting his own fliture in their hands because he had publicly stated several times that the Nis- san company had the right employees to achieve profitability again in less than two years.

Before the strategic alliance occurred between Renault and Nissan, Renault had made an

agreement with Hanawa to remain sensitive to Nissan's cul- ture at all times, and Ghosn was intent on following through on that commitment. First and fore- most, when he chose expatriates to accompany him from Renault to Nissan, he screened carefully to ensure that those expatriates would have his same cultural atti- tudes toward respecting Nissan and the Japanese culture. And, after completing liis rounds of talking with plant employees, he chose not to use his newfound understanding of the problems to impose a revival plan. Instead, Ghosn mobilized existing Nissan managers by setting up nine Cross-Functional Teams (CFTs) of approximately 10 members each in the first month. Through tliese CFTs, he was allowing the company to develop a new cor- porate culture from the best ele- ments of japan's national culture.

He knew that the CFTs would be a powerful tool for getting line managers to see beyond the tlinctional or regional bound- aries that defined their direct responsibilities. In Japan, the trouble was that employees working in functional or region- al departments tend not to ask themselves as many bard ques- tions as they should. Working together in CFTs helped man- agers to think in new ways and challenge existing practices.

Thus, Ghosn established the nine CFTs within one month of

Working together

in CFTs helped

managers to

think in new

ways and chal-

lenge existing

practices.

lhundcrbird International Business Review • January-February 2005 139

John R Millikin • Dean Fu

The CFTs also

prescribed some

harsh medicine

in the form of

plant closures

and employee

reductions.

his arrival at Nissan. The CFT teams had responsibilit}' for the following areas: Business Devel- opment, Purchasing, Manufac- turing and Logistics, Research and Development, Sales and Marketing, General and Admin- istrative, Finance and Cost, Phase-out of Products and Parts, Complexity Management, and Organizational Structure.

Ghosn had the teams review the company's operations for three months and come up with rec- ommendations for returning Nissan to profitability and for uncovering opportunities for fiiture growth. Hveii though the teams had no decision making power, they reported to Nissan's nine-member executive commit- tee and had access to all compa- ny information. The teams consisted of around ten members who were drawn from the com- pany's middle management.

Ten people could not cover broad issues in depth. To overcome this each CFT formed a set of sub- teams. These sub-teams also con- sisted often members and focused on particular issues faced by the broad teams. CFTs used a system reporting to two supervisors. These leaders were drawn from the executive committee and ensured that the teams were given access to all the information that they needed. To prevent a single fi^mction's perspectix'e from domi- nating, team had two senior voic- es that would balance each other.

One of the regular members acted as a pilot who took responsibility for driving the agenda and discussion. The pilot and leaders selected the other members. The pilots usu- ally had frontline experience as managers.

The CFTs also prescribed some harsh medicine in the form of plant closures and employee reductions. The CFTs would remain an integral part of Nis- san's management structure. They continue to brief the CHO; however the team's missions have changed somewhat. They are to carefi.iliy watch the on- going re\'ival plan and try to find fi.irther areas for improvement.

Since the members of the teams were ofi:en mid-level managers who rarely saw beyond their o\\ n functional responsibilities, this new coordination had high impact on participants. Specifi- cally, it allowed them to under- stand how the standard measures of success for tlieir own depart- ments were meaningless to Nis- san unless they were framed in a way that connected to other departments to result in cus- tomer attraction and retention. In many cases, these mid-level managers enjoyed learning about the business from a bird's eye perspecti\'e and felt tiilly engaged in the change process, giving them a sense of responsibility and ow^nership about turning Nissan around.

130 Thundcrbird Intcnsation.il Business Review • Ianiiarv-Febru.irv 200S

The Global Leadership of Carlos Ghosn at Nissan

As Ghosn explained in a speech in May 2002, "The trouble is that people working in function- al or regional teams tend not to ask themselves as many hard questions as they should. By contrast, working together in cross-functional teams helps managers to think in new ways and challenge existing practices. The teams also provide a mecha- nism for explaining the necessity for change and for projecting dif- ficult messages across the entire company."''

Ghosn did have one great stroke of luck that helped him reinforce the need for change. At approxi- mately the same time as he was arriving in Japan, Yamaichi, the major financial house in Japan, went bankrupt and was not bailed out by the Japanese government. Before that, Japanese employees, including Nissan's, did not worry about corporate problems because the government was always saving the day. This recent turn of events helped to develop a sense of urgency among Nissan employees. Ghosn, to his credit, used the Yamaichi example when- ever he could to continue to motivate his employees, repeating that their fate would be no differ- ent if they did not put all of their effort into figuring out, and then executing, the best way to turn Nissan around.

" Ghosn, Carlos, "SaHUg the Business wthout Losing tlic Company," Harvard Business Rtvitw. Vol. 80, No, 1, January 2002.

REFORMS IIM FULL SWING

Within the first six months, the fruit of the CFTs and the increased sense of urgenq' were apparent. Management {especially Ghosn) was increasingly perceived as transparent among all levels of employees, which Ghosn attrib- uted to his respect for protecting Nissan's identity. In addition, decisions were being made taster; and tiiere was increased commu- nication and understanding about what was important to manage- ment. There was, however, very little implementation yet, only planning. Having received from the CFTs the recommendations, which included plant closures and reduced head count, Ghosn creat- ed and communicated what he called tlie Nissan Revival Plan (or NRP) in October of 1999. From that point forward he stressed implementation and follow-up, rather than planning and re-exam- ining decisions. Other CFTs were formed, but tlie bulk of his efforts lay in ensuring high-qualit\' execu- tion of the decisions diat were laid out in the plan.

Ghosn's main focus areas includ- ed: (1) development of new automobiles and markets, (2) improvement of Nissan's brand image, (3) reinvestment in research and development, and (4) cost reduction.

Reducing Redundancies To achieve these results, the clos- ing of five factories and the reduc-

Within the first

six months, the

fruit of the

CFTs and the

increased sense

of urgency were

apparent

riuiiidcrbird International Business Review • January-February 2005 131

John R Millikin • Dean Fu

As one Of the biggest changes of the NHP, Nis- san broke away from the Japan- ese cultural norm of keiretsu

investments.

tion of 21,000 jobs {14% of Nis- san's workforce) were planned. Job cuts would occur in manufac- turing, management, and the dealer net-work/ Since Japanese business cultLire had tended to have lifelong cmpioyment as a principle, Ghosn endured strong criticism from the media, includ- ing being labeled as a jjaijin, a foreigner. In addition, Ghosn fired several managers who did not meet targets, regardless of the circumstances. Many industry analysts cited his demotion of Vice President of Sales and Mar- keting in Japan, Mr. Hiroshi Moriyama, as unacceptable and reckless. They contended that falling revenues and dissipated market share were due to Nissan's aging product line rather than to Moriyama''s performance. In addition to the media and indus- try analysts, the governnient, also expressed concern about the lay- offs, but Prime Minister Keizo Obuchi responded by offering subsidies and programs to help the affected workers.^

Keiretsu Partnerships As one of the biggest changes of the NRP, Nissan broke away from tlie Japanese cultural norm of keiretsu investments. However Nissan maintained customer-sup- plier relationships with those for-

' "Nissan's Napoleon," Worldlink, 11 July 2002, http ://\vww. worl dlink.to.uk.

" Barr. C.W. "Get Used to It: lapanese Steel Themselves for Downsizing. Mitsubislii and Nip- pon Telephone Have Added 30,000 layoffs to Nis- san's 21,000 Announced Oct. 19," Christian Sci- ence Munitor, Nov. 12, 1999.

mer keiretsu partners. As it turned out, Nissan regained billions in tied up capital to use for debt ser\- icing and new product develop- ment without losing any significant pricinu; ad\'antages. In fact, because Ghosn put such an emphasis on reducing purchasing costs, Nissan actually began to substantially lower its costs alter the keiretsu investments were sold.

Reorganization Another major component of the NRP was the restructuring of the organization toward permanent cross-functional departments, which each serviced one product line. As a result, the staffs gained better visibility of die entire busi- ness process and began to focus on total business success and customer satisfaction, as opposed to misleading performance goals that could be taken out of context. In addition, Ghosn also eliminated all advisor and coordinator positions that car- ried no responsibilities and put those personnel in positions with direct operational responsibilitv'. Employees were disciplined much more strongly for inaccurate or poor data than misjudgment, thereby stimulating risk-taking behavior and personal accounta- bility. Ghosn also made it clear, however, that engineers were not to reduce product cycle times or do anything that would negative- ly impact product quality or relia- bilit)'. He repeated this often to drive home the point that the way to restore the power of the Nissan

132 Tliundcrhird Iiuern.itiim.il Hiisincvs Review • Jjmiarv-Hcliruarv 200S

The Global Leadership of Carlos Ghosn at Nissan

brand was through each individ- ual customer's experience.

For higher-level staff, Ghosn cre- ated a matrix organization to improve transparency and com- munication. Within this matrix, he assigned each staff member two responsibilities: functional (e.g., marketing, engineering) and regional (e.g.., domestic. North America). The result was that each staff member would have t̂ \•o bosses., thereby building awareness of bt)th functional and regional issues. Ghosn also put an emphasis on cross-ftmctional department members having very clear lines of responsibilit)' and high standards of accountability. Every report, both oral and writ- ten, was to be 100% accurate. Ghosn is quoted as saying, "Right from the beginning, I made it clear that every number had to be thoroughly checked. I did not accept any rcpt)rt diat was less than totally clear and verifiable, and I expected people to person- ally commit to every observation or claim they made.'"^

Performance Evaluations and Employee Advancement Gliosn also put focus on per- formance by introducing a per- formance based incentive system. These incentives included cash incentives and stock options for achievements that could be

' Ghosn, Carlos. "Saving the Rmincss withoiu Losing ihc Company," Harvard Business Rn'iew, Vol. 80, N.I. 1. lanuary 2002,

linked directly to successful oper- ating profits and revenue. This was a large departure from the traditional Japanese compensa- tion system, in which managers usually received no stock options or bonuses. Under Ghosn's compensation system, the high- est achievers got the highest rewards. And promotions were no longer limited to age., length of service, or educational level. For example., a female factory worker who had only a high school diploma was promoted to be a manufacturing manager based on her strong abilities to perform the work., relating pro- motion and salary increase to the ability to perform challenging or demanding tasks. The promo- tion of some younger leaders over older, longer-serving employees caused some prob- lems regarding lack of coopera- tion. But just as Ghosn saw cultiu'al differences as growth opportunities, he thought these tests of authority were growth experiences for young managers.

THE FIRST THREE YEARS

The NRP was achieved in March 2002, one year ahead of sched- ule.'" One success was a 20% reduction in purchasing costs. This was a result oi' achie\ ing a purchase price from kereitsu sup-

'" 2002 News, "Nis.san Announced NRP Will Conclude One Year Earlier than Planned," h t t p ; / / w \v w. n i ssan - g U1 ba 1. com,

Under Ghosn's

compensation

system, the

highest achiev-

ers got the high-

est rewards.

Thuniicrbird Iiiltrnadoiial Business Review • January-February 2005 753

John P Millikin • Dean Fu

After NRP, four

plants produced

automobiles

based on 15

platforms.

pliers that matched the prices offered by Renault's suppliers. In addition, the suppher base shrunk by 40% and the service suppliers decreased by 60%.̂ ^

Prior to NRP, seven plants pro- duced automobiles based on 24 platforms. After NRP, four plants produced automobiles based on 15 platforms.'^

THE NEAR FUTURE—IMPLE- MENTATION OF NISSAN 180

On May 9, 2002, Ghosn stated in a speech for aii annual business review, "The Nissan Revi\al Plan is over. Two years after the start of its implementation, all the offi- cial commitments we took have been over achieved one ftill year ahead of schedule... Nissan is now ready to grow." He went on in the speech to set out the goals for a new plan, one he called "Nissan 180" which would focus on profitable growth. All new goals were to be accomplished by April 1, 2005. The one in "Nis- san 180" represents an additional 1,000,000 car sales for Nissan worldwide; the eight, an 8% oper- ating profitabilit)' with no changes in accounting standards; and the zero represented zero automotive debt. In addition, the plan called

" Nissan 180, "Flsi;al Year 01 Busiiicss Review/ hrtp ;//ww\v. nissan-global.c om.

'^ Nissan 180, "Fiscal Year 01 Business Review," hltp;//www.nissan global .tom.

for an increase of global market share fi^om 4.7% presently to 6.1%, a further reduction of purchasing costs by 15%, and a significant increase in customer satisfaction and sales satisfaction ratings, in 2002, mid-career hires (400) out- numbered college recruits (280). Because hiring outside managers might create animosity among managers within Nissan, this prac- tice refiects a sharp change in hir- ing decisions. "We're moving to a system where it cioesn't matter if youVe been in the company ten years or 40 years. . . . If you con- tribute, there will be opportunity and reward," said Kuniyiiki Watanabe, Nissan's Senior Vice President for Human Resources.^^

Not only was Ghosn aggressively launching the Nissan 180 pro- gram to transition out of the Nis- san Revival Plan program, but he was also pushing a new, customer- focused initiative called "Qualit)' 3-3-3." He said that this program focuses on three categories of qualit\': product attractiveness, product initial qualit}' and reliabil- ity', and sales Sc service quality.

CHALLENGES FOR GHOSN AND NISSAN

As Ghosn contemplates the future, he knows that the trans-

'̂ Raskin, Andy. *Wiii!lttf-K>w^ t;ompleTely Over- haul ThtK Big, Slow CMnpany ami Si.in M.ikiiig Some Cars Pcoplt Acrually Want Arcc Moi>" Busi- ness 2.0, Januarv 2002.

134 Thuniitrbird IntcrnatiaiiAl Business Revitw • lanuirv-Fcbruarv 2005

The Global Leadership ot Carlos Ghosn at Nissan

formation has really just begun. How could the momentum and the energ\' that his employees exhibited be maintained now that they had all reached the goals that were seemingly Her- culean just over two years ago. Would there be a letdown of effort and results by Nissan employees, or would Ghosn be able to mobilize them to get to the next level of profitable growth and reestablishment of brand power and market share?

He was aware that current suc- cession plans called for him to return to Renault as its new CEO, replacing Louis Schweitzer

in 2005. Before this could hap- pen, Ghosn would be chal- lenged to find an adequate replacement who could take Nissan to new heights of accom- plishment as planned. Could the new approaches that had been so successful become part of the Nissan culture without his con- tinued guidance? Would the success of the NRP spoil the sense of urgency that helped reinforce the need for change allowing Nissan to slip back into old habits? How could he find someone to carry forward the need to create a sustainable pat- tern of customer focus and prof- itable growth? #

Appendix 1. Summary of Results of NRP

The turnaround at Nissan was phenomenal, with the following statistics:

• From seven out of eight years of operating losses to profitability within the first 12 months. Since 1999, Nissan has shown {our consecutive semi annual operat- ing profits, and the year 2001 was marked by the best-ever, Rill-year earnings at Nissan. The current operating margin is 7.9%, over 3% greater than committed to in the NRP.

• Net automotive debt is the lowest it has been in 24 years (down from $10.5 bil lion to $4.35 billion).

• The company developed eight new car models to be launched by late 2002/early 2003, including the award-winning, revamped Altima, and the new 350Z.

• Supplier costs were reduced by 20%, as per the NRP, mainly through sourcing and other strategies to minimize exchange rate issues, as well as the reduction of the number of parts suppliers by 40% and the number of service providers by 60%.

• Five plants have been closed, according to the NRl'. • Headcount was reduced by 21,000, according lo the NRP, mainly through nat-

ural turnover, retirements, pre-retirement programs, and by selling off non core businesses to other companies.

• The number of car models that were profitable increased to 18 of 36 models from 4 of 43 models.

lhundcrbird International Business Review • lanuarj-Fcbruary 2005 735

R Millikin • Dean Fu

Appendix 2. Nissan and Renault Profile

The Renault Croup 2000

Revenues: E l U 40.2 biUio

Global Production : 2,427,178 units PwiCBiier cnn i Ustit Conunrrrinl Vphiclei

• PlOIlC. • l.tttllL Et:u,t • Otkoi

The Nissan Group - 2000 (April 2000 Marcb 2001)

Revenues: JPY 6.090 binion ' I'SS 49.1 bOllan T l H 57.9 bnUon (Exchaiigo ratr al 2001/OJ/30 : SI = JPY 124 ; I EUR = JPV 109)

Global Production : 2,613,948 units : cara + U|dit CnimnpixlHl Vf

Shareholders' equity at December 31, 2000: Shareholders' equity at March 30, 2001: EtlR 9IS.6JZ.S40.Z7 JPY 9S7.959 nlUioii

Shaieholdirs

Fuel. Slat i

Shar<bo]d9is

• FT<cb S l i t *

Global Sales : 23S6,778 units Paijengerr«r» -̂ Ut|lu Cnmraciclal V

Global Sales : 2,632,010 units rm-i + Ugbt Coimnertliil Vehicle•

136 Thunderbird International Busini:ss Review • Ijnu.irv-FtlTiiarv 2005

The Giobai Leadership of Carlos Ghosn at Nissan

Appendix 3. Carlos Ghosn's Background*

1954 Bom in Brazil, March 9 1974 Receives chemical Engineering degree from F.cok- Polytcchnique, Paris 1978 Graduates from tco\c des Mines de Paris. Joins Michelin 1981 Becomes plant manager at Le Puy plant, France iyS4 Becomes head of R&D 1985 Becomes COO of South American operations. Turns company around 1989 President and COO of Nortli American operations 1990 Named CEO of North American operations 1996 JniiiN Renault as Executive VP of advanced R&D, car engineering and devel-

opment, power train operations, manufacturing, and purchasing. Gains nick- name, "Le Cost-Killer"

1999 Named Nissan president and COO*

" http://www.gii(iglc.co.ip/search?q-cai;hi::NNROtavWl,w AC :www.ai-< inline.aim/articics/0302covcr- story.asp+carliis+tiliosn.+batkground fichl-ja& ic - UTF • 8

Thundcrbird International Business Review • January-February 2005