The Hindu Business Line : Driver's skill in the Nissan U-turn

Turnarounds require fresh thinking. A turnaround manager even by resisting the temptation to decry systems and operations in existence and keeping himself from overstating the problems of the firm, can achieve success. All that one needs to do is to focus on re-awakening the talents already existing in the company.

Japanese carmaker Nissan reported a fall in sales and operating profits for the first six months of 2006-07 compared to the previous year. This is not a disaster, but has raised doubts in some people's minds if Nissan's dramatic turnaround was running into difficulty, especially as the fall came after six straight years of profits. Turnarounds are never permanent as market conditions change and new actions are constantly needed to keep companies on their growth path and preventing a slide into complacency. Yet, Nissan's turnaround is a much talked about one and entirely attributed to the leadership provided by its CEO.

There are not many business leaders who reach celebrity status based on their performance as managers. Nissan's Carlos Ghosn (pronounced to rhyme with `phone') is one such person. He is an icon in Japan and has even been featured in comic books. He also seems to be in demand elsewhere. The US automobile industry is facing such a shortage of proven leaders that Ghosn's success with Nissan has made him a much sought-after commodity.

Nissan's turnaround is a good record for any company, and even more so for an automobile company.

Pushing for change

GM, the US auto giant, has been in trouble for some time and the most recent effort for rejuvenation came when Kirk Kerkorian, an investor, acquired stock in the company, put in his own representative on the board and started pushing for change in the company's strategy. One of Kerkorian's moves was to try for an alliance with Nissan just so he could get Ghosn to help lead GM back into growth and profitability.

When that move was successfully resisted by GM's CEO, Kerkorian sold his shares and exited. The CEO of Ford, meanwhile, was also extending his invitation to Ghosn to come to Ford in an effort to revive that company's lagging fortunes. All of which makes one want to closely look at Ghosn's achievements.

Turnaround manager

That's what made me pick up the book titled Shift: Inside Nissan's Historic Revival (2005, Currency Doubleday) where Ghosn has put down his experiences in turnaround management. Renault, the French carmaker, entered into an alliance with Nissan of Japan, and took on the commitment of turning around the latter. Ghosn was its secret weapon, for he had come to Renault with a reputation as a turnaround manager from previous experience with Michelin and had just put in place a revival plan for Renault, when he was moved to take on the problem at Nissan.

Renault, a government-owned company with a strong union and one that was itself going through a revival, is an unlikely partner to take on such a responsibility, and one must complement the visionary leadership of its CEO at that time, Louis Schweitzer.

Ghosn's plan to turnaround Nissan involved both strategic and operating decisions. He set clear goals that the employees could relate to. For example, the Nissan Revival Plan called for profitability by the year 2000, profit margins of 4.5 per cent of sales by 2002, and a 50 per cent reduction of debt. He sold non-productive assets and took up development of new models in order to sharpen the focus of the company while simultaneously cutting costs by laying-off workers and generating savings through rationalising the production plan.

Ghosn obviously likes the symbolism of setting specific goals. His subsequent plan for the years 2003-2005 was termed `Nissan 180' which meant an increase of one million vehicle sales, eight per cent operating margin, and zero debt.

Fresh thinking

Turnarounds also require fresh thinking. Ghosn challenged many of the business and management taboos of Japan, and that is what the board of Nissan had in mind when it accepted a person who was not only from outside the company but from outside the country. Japanese like to think that they know best and it is probably a sign of desperation on the part of the Nissan board that they clutched at the terms proffered by Renault. The first taboo Ghosn challenged was to dismantle Nissan's Keiretsu, a system whereby Japanese companies operate in a network of companies with which they cross-hold equity, and maintain close business relations as preferred suppliers. Ghosn saw the system as having locked-up capital that he needed to pay Nissan's debt, and did not see the business logic of some of the investments. So he divested the equity of those with whom he did not think it made sense to continue being linked, and raised the money for more productive investments elsewhere.

Decision-making

Other taboos he challenged included cutting short the traditional consensus system of decision-making. While it has its merits, it often takes a long time, and Ghosn wanted to move quickly to implement decisions that had been made. He also gave up the lifetime employment guarantee that is implicitly followed in many large Japanese corporations, and laid-off 21,000 workers (including natural departures and early retirements), in order to cut costs.

Another taboo that he broke was to by-pass the system of seniority-based promotions in order to reward the high performers and create incentives for courageous action. His Nissan Revival Plan also reduced the number of factories from seven to four, and the number of manufacturing platforms from 24 to 12.

Re-awaken the talent

Most turnaround managers begin their stints by decrying systems and operations in existence and overstating the problems of the firm. The former is to set the ground for doing something different and the latter is useful to project any achievement as being a significant improvement. Ghosn resisted the temptation to do both, and instead, remarks in the book that the need was only to re-awaken the talents already in the company.

He wanted to change the company from the inside rather than project solutions from outside, and although he brought a team from Renault to assist him, he also formed teams of Nissan managers to come up with various plans. The company's market share in Japan had been in decline for 27 years and the company had made losses in seven out of the preceding eight years, before Ghosn's arrival. By announcing that he and his team would quit if he did not achieve the turnaround, Ghosn indeed took a great risk, but made his intentions and personal commitment very clear.

Facing the challenges

Ghosn provides rich descriptions of the challenges he faced and the steps he took in accomplishing his mission. He focuses on the trouble spots and the management issues he had to deal with. Where the book is disappointing is in not dwelling on the difficulties in implementing the plan. All turnaround managers, in a sense, face a straightforward situation, that is, the need to raise revenues while cutting costs. Designing the details of the plan is where the skill comes into play.

But the greatest challenge is in the process of implementation. Surely, while dealing with a tradition-bound company, and while challenging the many taboos that he took aim at, he would have found considerable resistance, both overt and covert. Hide-bound managers would have attempted to sabotage his plan, especially if it wasn't in their line of thinking. His initial moves may have required tweaking as he began to see it come into effect. There is very little description in the book of the opposition he faced and what it took to overcome them. Moreover, turnarounds are also usually a two steps forward-one step backward kind of situations. Some description of where he had to back-track and get around objections would have been valuable for the reader.

Ghosn represents the kind of manager that signifies our globalised world. He is of Lebanese descent, was born in Brazil, studied in France, and is an icon in Japan. At 52, Ghosn is going to be around for a while. He may well have more lessons for us.

(The author is a professor of international business and strategic management at Suffolk University, Boston, US. He can be reached at cgopinat@suffolk.edu)

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