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.
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.