Carlos Ghosn (12) Mapping out a plan to save Nissan
Seeing losses everywhere, Ghosn rejects the first X-Trail, initiates huge cost cuts
The first order of business when I joined Nissan Motor was to build a plan for its recovery. At the time, Nissan was in a desperate situation. The company's share of the Japanese market had been steadily falling for 26 years. Financially, it had been in the red for seven of the eight years through 1999. Interest-bearing debt was more than 2 trillion yen ($17 billion at current rates). Because of this, the release of new models had slowed almost to a stop.
How did Nissan find itself in such a hole? One reason was that the company had simply not valued profits. Back in 1999, Nissan offered 43 models, but saw profits for only four of them, and small ones at that. I remember one executive meeting early on in my tenure in which I rejected the development plan for a new model called the X-Trail.
To me, the reason was clear: The proposed business plan would result in a loss. But other executives and staff were shocked. It was the first time that a plan for a new model had been rejected by the executives. The team argued that without the plan, dealers would have nothing to sell. I responded to their pleas by saying, "no profit, no program." Discipline was critically important. (The X-Trail we have produced since 2001 is an improved, and profitable, version of that plan.)
The issue wasn't that Nissan executives hadn't recognized the problems in front of them; it was that no one wanted to take the tough action needed to solve them. But I was adamant: We had to confront reality.
Over the next several months, I turned to the employees to put forth their ideas and plans. A key part of this process was the development of cross-functional teams (CFT). The CFT is a concept at the core of my management approach, and it was a method I had practiced many times before and proved successfully in the face of many corporate challenges over my career. The problem at many large companies is that individual teams only hold a piece of the solution, but they don't talk to each other to assemble those pieces together. A CFT facilitates this.
At Nissan, we put together 10 teams in all, composed of 10 middle managers from purchasing, production, development, finance and other relevant functions. Each team addressed a specific company challenge. I also joined in the discussions, which was an invaluable learning experience for me.
One team was focused on purchasing. At the time, Nissan was paying 20% more than Renault for parts. Not because they were higher quality, but because Nissan was trading with so many suppliers, we were not achieving the appropriate economies of scale to bring down the price per part. We could do better.
At first, members of the purchasing CFT said they would target a 5% cost reduction in three years. I refused. This was not a big enough improvement. I pushed them to think bigger. At the end of a series of meetings, we had agreed on a 20% cost reduction over two years. I didn't tell them that was the goal -- they arrived at it on their own, which was much more effective than a solution imposed from the top down.
Discussions regarding Nissan's revival plan continued through September 1999. At the end of that month all major elements were assembled into one big file. In October, I locked myself in my office to review the details and refine it. As the plan fell into place, it was clear to me that this would require enormous change and bring much pain -- but with potential long-term benefits. The alternatives were to risk the collapse of the entire company. I knew it was time to explain those changes and rewards to the public.
On Oct. 18, two days before the Tokyo Motor Show, I stood on the stage at a venue in Tokyo's Hakozaki district, preparing to deliver a speech. I was using a teleprompter, which was still not used often in Japan. I wanted to make sure I had every word precise, as it would affect many lives. After I finished, a wave of applause erupted from both Japanese and foreign media. A veteran observer told me then, "I've never seen such an overwhelming response before in Japan." Now the hard work could begin.
Carlos Ghosn is chairman and CEO of Nissan Motor Co., Ltd.
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