The biggest turnaround of the automobile industry
Throughout the history of enterprises and companies of all scales. There have been many sunrise and sunset enterprises. Some of the biggest conglomerates have fallen to its brutal end, but some just survive and rise higher than ever with the proper combination of turnaround management and outside intervention. Another example of one of the biggest turn around management that the world has ever witnessed is the story of Carlos Ghosn, former CEO of Nissan, who brought the industry to what it is today.
“In today’s world, you have to earn your right to compete every day, day after day. And the basics that help you do that are the same ones that turnaround managers use to bring failing companies back to life.” - Harvard Business Review
To read the full Carlos Ghosn article: Carlos Ghosn: I made my expertise through facing challenges that others don’t want to
Despite the many big events that Carlos Ghosn marked throughout his career and life, the former Nissan CEO has pulled a few rabbits out of the hat in the industry prior to the conglomerate turnarounds. At the supple age of thirty he became the COO of Michelin’s South American operations, seven years after he started off at the European tire company. Within two years, he restored profits and stability, and this was his first giant leap in a diverse cultural approach to business operation.
...Michelin had negotiated the closures of three plants in North America, which was met with heavy criticism. We simply could not afford them. This earned me the nickname ‘The Cost Cutter’. But I didn't mind -- I knew cost-efficiency was the pathway to recovery.” - Carlos Ghosn
Years later, he became the Executive Vice President President of Renault. At the time he joined the company, they were experiencing giant losses due to a merger with Volvo two years prior. Within a year, Ghosn returned the company to profitability again. This had earned him the iconic nickname “Le Cost Killer”.
At the age of 45, he was offered a position as Nissan’s COO while he was Vice President of Renault after the French company bought a 36.8 percent stake in Nissan Motors. Ghosn’s most famous victory is also the one that had many doubting him. Despite the complicated relationship he has with Nissan and the Japanese Government today, he erased 20 billion USD of debt that Nissan was struggling with. The Japanese and international observers deemed his mission impossible, and for this, he earned a new nickname, ‘the Icebreaker’. By 2005, He was the CEO of both Nissan, and Renault. This made Carlos Ghosn the world’s first person to run two companies on the Fortune Global 500 at the same time
Following the end of WWII, Nissan had nonstop growth and increase in revenue until the late 90s. Despite Japan having the upperhand when it came to car production, Nissan was falling behind due to global trends shifting and wanting stylish cars in addition to safety and durability. Nissan put itself in hot water by not updating their car designs and hoping that the durability will continue to be the biggest factor in consumer decision. Additionally, it was 20-25 percent more expensive for Nissan to produce cars than it was for Renault. On top of the Yen’s devaluation, Nissan needed funds from another car company. This is where the Renault and Nissan partnership came into play.
Nissan Revival Plan (NPR)
The turnaround management Carlos Ghosn came up with for the company was called the Nissan Revival Plan which included;
- Developing new markets and new cars with a greater emphasis on design
- Improving and reviving Nissan’s brand image
- Kickstarting an Investment plan for research and development
- Reducing the costs of production.
On the human resources aspect, Ghosn’s innovative ideas included a company culture shift in which he removed positions that were not useful and established a rewards package for employees who came up with new ideas.
A multi-cultural background
Ghosn comes from a very mult-cultural background having Lebanese parents who were born in Nigeria, and Brazil, he states that all of this had much to do with how he was shaped. He says his mother was more French than those who were born there. When it came to the pursuit of his higher education, this played a major role in him moving to France from Lebanon where he spent his high school years. His children have also lived in Brazil, the U.S., France and Japan picking up pieces of the culture. Like him, they have retained their identities whilst embracing globalization. Including Ghosn himself, many claim that his cultural intelligence and understanding is a major reason as to why he has been successful in many different countries. Though Brazil, France, and the US are all relatively multicultural, when he arrived in Japan, he was not welcomed by a society that is open to the idea of a global lifestyle 20 years ago.
Michelin years: first steps in turnaround
Prior to studying engineering, Ghosn came to France to study business. This curiosity is perhaps what helped him learn about management. Whilst working in the headquarters, he highlights working under the chief financial officer a critical experience in his career alongside the development of cross-manufacturing. There, he learned the concepts and practices of cutting-edge corporate finance and the techniques for optimizing resources. Seven years later he was sent to Brazil while there was political instability, and hyperinflation exceeded 1000% a year. Businesses were facing giant losses and Michelin was in a large amount of debt. Despite this Ghosn considered Brazil an ideal location due to the abundance in natural resources, and the large market potential. The operations were stabilized due to the strict cash flow management measures that he had put in place. Francis Michelin, the owner of Michelin, was so impressed by his work that he assigned Ghosn to Michelin’s biggest overseas market, the US.
19 years in Japan: Innovating the Japanese Company Culture
Before Ghosn came, the culture in Nissan was that the older employees would be promoted due to their seniority, which is common in many Japanese workplaces. As the NRP came into effect, Ghosn allowed for younger employees to be promoted above older employees. In the past, everyone was focused on not making mistakes and less on innovation and new ideas. The rewards package in addition to the new promotion possibilities got all the employees excited to contribute to the company. Once again, ‘The Cost Cutter’ had reduced costs by 20 percent for the first time in years, and the change in energy in the company had led the NRP to be completed within just two years. However, getting everyone to understand that change is necessary was no easy task. Much like he did in Brazil, he interacted with the employees in person which made them feel valued and connected.
Formation of the alliance between Nissan and Renault was one of the most impressive milestones following Nissan’s revival. In Japan and internationally, he is renowned for being an excellent communicator. The merger between the French and Japanese side let Nissan keep everything it stood for as a brand and for years he worked in keeping both sides happy and hostility to a minimum, and even brought on Mitzubishi to join the power alliance. As well as keeping the companies at peace with one another, he created an openness amongst the different Nissan teams and was always great at building teams and interacting with the employees in person. These interactions made the employees feel valued and connected.
The philosophy of Ghosn’s leadership
The philosophy of Ghosn’s leadership was one that is applicable in all contexts, and some even regard it as one that cannot be affected by cultural bias. The three pillars were;
- Focus on great communication
- Excitement to execute on a plan
The goals of the company were set clear and everyone took part in it. When one objective was met, he set the next challenge for everyone to work towards. Ghosn’s cultural intelligence, his charisma, and characteristics let him achieve a difficult mission; bringing together two entirely different cultures, two companies, and extremely different economies together under one alliance.
To run a global carmaker in the early 21st century — amid threats from upstart electric car brands, competition from ride-sharing companies such as Uber, and deepening changes in consumer behaviour — requires ambition, vision and decisiveness. These qualities made Ghosn a uniquely brilliant leader for many years.
“...I went alone to a factory whose workers were on strike to hear their concerns. I did not encounter any hostility; all they wanted to do was talk.”