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MASTER OF BUSINESS ADMINISTRATION

MGT 6798

CASE METHODOLOGY:

AT THE TOP OF THE HEAP

An Individual Assignment

Submitted to:

Mr. Ayub bin Hj. Khalid

Submitted by:

Fakhrul Anour bin Abdullah G1136857

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CONTENTS

1- ABSTRACT Page 02

2- INTRODUCTION Page 03

3- PROBLEM STATEMENT Page 05

4- SWOT ANALYSIS Page 08

5- CONCLUSION Page 09

6- RECOMMENDATION Page 13

7- OTHER REFERENCES Page 14

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ABSTRACT

“The auto industry is an industry of mules, not racehorses. It is one

where the animal with the fewest handicaps is going to win the race, not

the one with the perfect pedigree. A mule is a very solid animal. I spent a

few days in Brazil, and I was riding a horse in the mountains, and

there were some people there with a mule. And I said, a mule is

much safer than a horse because a mule

will never put its feet in a hole, while a

horse from time to time gets carried away.”

— Carlos Ghosn, in a 2004 Fortune Interview

“Failure was not an option,”

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INTRODUCTION

In 1999, Carlos Ghosn had been brought over by Renault (which owned 44.4% of NISSAN,

which held 15% of Renault). When he took over, NISSAN’s share in the global market had been

on a continuous decline. But he had run like a ‘mule’ to the automobile industry and brought

together one of the industry’s best success stories—a non-Japanese and a non-NISSAN person

had come to rescue a fallen champion of the Japan auto industry in the world.

Five years later at the annual stockholders’ meeting of Nissan Motor Co. on June 2005,

media covering the meeting described how the NISSAN shareholders moaned about the stock

price at the annual meeting, but applauded CEO Carlos Ghosn for the leadership that had made

the Brazil-born Frenchman a celebrity in Japan. At a reception after the three-hour meeting,

shareholders scrambled to shake his hand, some asked for autographs and others posed at his side

for a photo.

With bankruptcy worries long gone, Ghosn assured the 1,835 shareholders at the meeting

of his commitment to deliver further growth even as he began to spend less than half his time in

Japan.

►

A Japenese comic book Big

Comic Superior/ビッグコミ

ックスペリオール

serialized Ghosn’s life

history aimed to energizing

executives in the 25-40

years’ age bracket.

“Ghosn has reformed the company and achieved a result

that did not seem possible in a Japanese framework. He

has a message of hope that has woken people up to new

responsibilities and we wanted to convey that message.”

— Akihito Yoshino (editor)

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In 1999, when Carlos Ghosn took over as Chief Operating Officer, the continuous

declining share of NISSAN at global market marked the annual production had fallen by 600,000

vehicles. In six of the last seven years, NISSAN had record net losses; a gigantic debt of almost

two trillion yen (or about USD20 billion), a debt burden of ¥1,400 billion, more than twice the

company’s equity capital. Earlier, two of prominent car producers (Daimler Chrysler and Ford)

had taken a look at NISSAN and backed off.

Upon his chosen, many shareholders of NISSAN were skeptical of his ability to revive

the debt-riddled company. According to a newspaper report on the 2000 Annual Stockholders’

Meeting in 1999, there were a lot of statements by shareholders that

was against him to be the choice to replenish the value of NISSAN.

But that didn’t break him to take the task with full responsibility.

Even in the year (1999) to March, NISSAN posted a group net loss of ¥684.4 billion (USD6.3

billion), rocketing from ¥27.7 billion a year before, and in the process saw Honda Motor Co.

Ltd. overtake it as Japan’s second biggest carmaker.

►

“Mr. Ghosn is now a NISSAN man. He’s left Renault.

He’s an earnest man, an honest man. We do need

non-NISSAN ways to rejuvenate the company. We do

need to listen to him to learn about new ways.”

— Said Yoshikazu Hanawa (Chairman of NISSAN) at the meeting

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PROBLEM STATEMENTS

At the 2000 Annual Meeting of Stockholders in 1999, Carlos Ghosn then summarized his

diagnosis of NISSAN’s values against its problems:

The failure to

concentrate

on profit

making

The

company’s

neglect of its

customers It’s weakness

in cross-

functional

work

The general

absence of a

sense of

urgency

The lack of a

common,

long-term

vision

A significant

international

presence

deployed on

global scale

In several

crucial areas,

it is on the

cutting-edge

of technology

Nissan’s

alliance

with

Renault

“NISSAN was strapped for cash, which prevented it

from making badly needed investments in its aging

product line. The competition, by contrast debuted new

products every five years. Toyota’s entry level car at

that time was less than two years old.”

— Carlos Ghosn ‘Saving The Business Without Losing the Company’

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Before Ghosn walked in, NISSAN had initiated the ‘Global Restructuring Policy’ in June

1995 and its ‘Plan to Reform Its Business Globally’ in May 1998. But the plans that NISSAN

had worked up in the past to revive its company were essentially—qualitative. Even Ghosn had

trouble figuring out what they were trying to do. There were no priorities, no coordination or

timing. They didn’t put a name or a team in front of each goal. There was no internal

communication and no financial closure.

“If you don’t define quality and assess its current level, if you don’t state the goal

you want to reach in raising that level, if you don’t set timetables and deadlines

and assign groups to do the work, if the plan isn’t articulated, divided into

sequences clear enough for people in the company to grasp-well then, nothing’s

going to happen. Or in any case, not much will happen.”

— Carlos Ghosn and P. Ries, “Shift: Inside Nissan’s Historic Revival” (pp. 102-103)

Within three months (July – September 1999), Ghosn built NISSAN Revival Plan/NRP

based on a process that he successfully used to restructure Michelin North America as president

and CEO before joining Renault in 1996. With the NRP, he diagnosed problems needed to be

solved:

1) NISSAN’s brand image was so poor that the company was forced to sell comparable

products at lower prices than its competitors.

2) NISSAN had too many suppliers, each of whom received volume orders that were to

small to allow the economies of scale to work in their favor.

3) NISSAN’s engineers were imposing specifications that didn’t take into account the

current industry standards and weren’t necessarily a response to any specific customer

demand (engineering didn’t listen to what the suppliers were saying).

4) NISSAN’s factories were only running at 53% capacity, devouring scarce capital.

5) General expenses were running higher than the best companies in the industry.

6) The distribution network was characterized by a lack of entrepreneurial initiative and

company’s spirit as well as overlaps and competition among the dealers.

7) Much needed capital was also invested in non-strategic assets, most in 1,394 companies

(except four) which are considered dispensable to NISSAN’s future.

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With NRP, Ghosn unveiled (on 18th

October 1999) that the plan promised to restore the

company’s profitability by revitalizing its product portfolio (four new models in United States)

while reducing cost by more than USD9 billion and debt to USD6.4 billion by 2002. The cuts

would come from:

1) Centralizing global purchasing (much like General Motor), manufacturing and from

‘sales, general and administrative’ costs.

2) The assembly and two power train facilities in Japan would be closed, worldwide

headcount would reduce by 21,000 (through natural attrition, an increase in part-time

employment, spin-off to non-core business and early retirement) and key functions

would be globalized.

When Ghosn announced that NRP, the Three-Year Plan would focus on downsizing

workforce and closing plants, many Japanese media felt that his move would adversely affect the

Japanese economy, which was already reeling under deflationary conditions. They also felt that

to downsize workforce because the company was not doing well was unethical. Not only the

media, even the NISSAN’s competitor, Toyota Motor Co. criticized the move and felt that it was

unfair to downsize employees. How was he able to cut jobs and close plants in Japan, where

‘lifetime’ employment is an entrenched tradition?

►

Because of the methods Ghosn

adopted to move away from Japanese traditional

practices, Ghosn earned the nickname ‘Ice

Breaker’ from the chairman of Daimler

Chrysler, Jurgen E. Schrempp. This was in

addition to an earlier one ‘Le Cost Killer’.

“We were faced with potential complete

collapse of the company, and people

understood this. This sense of urgency was

established so people would give a hand

and see for themselves that if we didn’t

change, nobody would have a job.”

— Carlos Ghosn

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SWOT ANALYSIS

STRENGTHS

1) A significant international

presence deployed on

global scale Technology

advancement

2) In several crucial areas, it

is on the cutting-edge of

technology

3) Nissan’s alliance with

Renault

4) Established network of

suppliers and

dealers/sellers

WEAKNESSES

1) The failure to concentrate

on profit making

2) The general absence of a

sense of urgency

3) The lack of a common,

long-term vision

4) The company’s neglect of

its customers

5) It’s weakness in cross-

functional work

W-O

Ghosn took extreme

measure to reduce debt and

raise pressure on

performance by

downsizing labors, units

and costs. At the same

time, he maximized the

corporate social

responsibility.

S-O

With NRP, Ghosn utilized

NISSAN’s strengths by

coordinated them with

opportunities to associate

power and influence in

order to leverage the

company’s potential.

Toyota’s strength lies in

the fact that most of its

dealerships are

independent, so the room

to grow is always around.

OPPORTUNITES

1) There were healthy

competition for

room to grow in the

industry

2) Labor supports

through trade

unions

3) Cross culture

implementation to

increase global

understanding

THREATS

1) Scarce capital

2) Skeptical

shareholders grieved

by culture

differences

3) Media attacks on

unemployment and

company’s

downsizing

4) A culture of blame

5) Unstable economy

W-T

On facing pressure given

by perceptions of media,

understatement by

shareholders and

employees fear of losing

job; through NRP then

followed by Nissan 180, he

increased the company

performance to prove.

S-T

Understanding the strengths

of NISSAN had given an

early idea for Ghosn to use

his proven method of NRP

to redevelop its financial

strengths and increase

awareness without blocking

any media attentions. His

target is communication

among everybody who has

concern on the status of

NISSAN under him.

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CONCLUSION

In less than five years since 1999, NISSAN again became number two as the domestic carmaker,

next to Toyota in Japan (in terms of capitalization). He has forecasted a size twice as big as its

partner, Renault, in sales. He did it in two key ways:

1) Rather than impose a plan for the company’s revival, he

mobilized NISSAN’s own managers, through a set of cross-

functional teams (with NRP), to identify and spearhead the radical

changes that had to be made.

2) Renault remain sensitive to NISSAN’s culture at all times,

allowing company room to develop a new culture that built on the

best elements of Japan’s national culture.

To NISSAN’s shareholders, he offered a profitable company and restored the glory of

NISSAN. Its stocks were going for ¥400, and then the price rose to ¥500 and ¥580. By fiscal

year 2001, the NISSAN stocks were at ¥410. By mid-

2004, share price hovered near ¥1,200. For Ghosn, the

most important task from the beginning was to establish

lines of communications with this group (shareholders,

employees, suppliers, media and competitors) in order to

persuade them to renew their faith in the company.

◄ Ghosn believed that those two goals of making changes and

safeguarding identity could easily came into conflict, meanwhile pursuing

both entails considered a difficult and sometimes precarious balancing act.

Credibility rests on two pillars:

1) Performance—if you don’t

perform, you’re not

credible.

2) Transparency

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With the NRP, Ghosn setup 9 CFTs (cross-functional teams) that would cover the entire

spectrum of the reforms he intended to make. Each team headed by 2 leaders (members of

NISSAN’s executive committee with the rank of executive vice president), representing the

principal functions connected to each team’s assigned area of concentration. Each time was

provided with a pilot, a senior manager whose area of competence was most directly linked to

the team’s defined goal.

CFT

TEAM 01 Business

Growth

TEAM 02 Focused on

purchases

New

Products

New

Areas

New

Markets

Represented

60% of a

manufacturer’s

expenditures

TEAM 03 Manufacturing

& logistics TEAM 04 Research

&

Development

TEAM 05 Sales

&

Marketing

TEAM 06 General &

Administrative

Services

TEAM 08 Phasing out of a

product, a piece

of equipment,

or a service

TEAM 07

Finance

TEAM 09 Organization

and value

added

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

2 leaders

+

1 pilot

+10

10+

+10

+10

+10

+10

+10

+10

+10

NOTE:

Team leaders and the pilots collaborated

on choosing the members of their teams.

The average team was made up of 10

people, middle-level managers with direct

responsibilities.

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◄

Mobilizing the best through

CFTs—though initially

the Japanese found it difficult

to adapt to the changing culture, they

soon realized that the revival of NISSAN

depended on their suggestions and the

came out with around 2,000 suggestions.

From the nine CFTs, then there were

additional 5 more CFTs to make it into

14 CFTs to carry NISSAN 180 program.

TEAM 14 Business

Growth

Ghosn’s experience at shop floor while working at Michelin, had taught him the

importance of listening to lower employees. He believed in listening to people at all levels and

learning from them.

Ghosn’s strongly believed that answers to problems faced by a company lay within the

company itself. He identifies the battle for public opinion inside the company as the crucial battle

for the success of the NRP. His offer to resign, if any targets of the NRP were not met within the

time frame and at the stipulated level, was to focus the employee’s attention to the new

commitments. In addition, the compensation system was revamped to put focus on

performance—share options became part of the incentives.

Within the first TWO years, way ahead of the target year of FY 2002, NISSAN and

Ghosn had reached the NRP targets. The first three year of NRP, it met its targets way ahead of

schedule. The next one NISSAN 180, is a Plan for Growth on V-Plus (Innovation, Quality and

Costs) with targets marked for April 2005.

TEAM 10 Associated

business

TEAM 11 Supply-chain

management

TEAM 12 Intellectual

Assets

Management

TEAM 13 Fleet

Business

3 PRINCIPLES

OF

GHOSN’S STRATEGY

Work Fast

Do not assume anything

Deliver strong results, which would earn

the respect and trust of employees

CFT NISSAN

180

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Maintaining a healthy level of growth with top-level profitibility was his biggest

challenge in going forward for the company. But NISSAN 180 plan had succeeded the original

revival plan in May 2002. Zero debt was reached a year before, and the company was ahead of

its goal of 8% operating margin. In 2003, for the first time since 1990, it had cross more than 3

million cars sold without trying for more market share or volume deserve.

NISSAN, like a mule, had steadily gone through its stages; financial recovery, launch of

new models more and more representative of the new image; a return to investments and hiring;

stabilization, followed by the rise of the company’s market share. In June 2004, when Newsweek

published a ranking of the Global Top 500 corporations, NISSAN, at 68th

was the top carmaker

ahead of BMW (at 71st), Honda (at 79

th) and Toyota (at 87

th). The ranking was based on

turnover, return on equity, financial standings, and corporate social responsibility.

According to Ghosn, the first social

responsibility of a CEO is to be the leader of the

company—not only to his direct reports but also the

midlevel managers, to the people who build the

company’s products and to those who deal with the

company’s customers.

“Whatever talent I have for managing people has been more helpful to me than my

formal education. The growing complexity of technology or finance is no obstacle

at all. What you have to do is to make sure you are surrounded by colleagues

capable of analyzing subjects in depth and summarizing them in such a way that

you can make, or let someone else make, the most appropriate decisions.”

— Carlos Ghosn

The CEO is a strategist. He must continually make judgements about the company’s

optimal field of activity. If he is too restrained, the enterprise will gradually be drained of energy

or grow rigid to the discouragement and loss of ambitious and talented employees. If he is too

expansive, says Ghosn, he risks blurring the lines of command, diffusing concentration, and

exhausting resources. The CEO is alo the architect of time, he must choose between the dictates

of the short markets and long term management resources.

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RECOMMENDATION

The Renault Nissan Alliance was signed on March 27, 1999. Renault gave Nissan a $5.4bn cash

infusion in exchange for a 36.8% equity stake in the company. Carlos Gohn, then executive vice

president at Renault, was appointed Nissan's chief operating officer (COO), arrived in Japan in

the spring of 1999 and implemented the so-called Nissan Revival Plan (NRP). The NRP began to

produce immediate results. The Operational Profit Margin/OPM peaked at 3.5% in 1989, fell to

as low as -0.1% in 1992, and proceeded to average 1.5% thereafter. These ‘squeezed’ margins

are one indication to shareholders that the future course of earnings, and therefore the firm's

share price, may be overvalued.

Therefore for the future intake of NISSAN’s financial potential, beside looking at the

managament performance to increase production and profit stability, it is also adviseable if

NISSAN could monitor the market price of its stocks. Though stakeholders may have quite an

important role to the prestige of NISSAN’s value, the agility power of shareholders should also

be compensated with fair dividends to boost equity.

The OPM (Operational Profit Margin) increased from 2% in 1999 to as high as 11.1% in 2003 --

the highest among global automotive companies. In addition to increased sales growth, asset

streamlining, and cost-cutting, Nissan Motor Co. achieved on-going market share expansion from

4.6% globally in 1999 to 5.3% in 2003.

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OTHER REFERENCES

http://www.japanreview.net/essays_nissan_fundamentals.htm

http://www.nissan-global.com

http://blogs.wsj.com/japanrealtime/2013/11/01/is-there-life-for-nissan-after-carlos-ghosn/

http://knowledge.insead.edu/leadership-management/operations-management/the-transcultural-

leader-carlos-ghosn-ceo-of-renault-nissan-1904

http://topics.bloomberg.com/carlos-ghosn/

http://www.forbes.com/sites/stephenharner/2013/11/18/is-nissan-losing-its-soul-under-carlos-

ghosn/

“Don’t judge me on a good

speech, judge me on my results.

Be very cynical. Be very cold.

Look at the profits, the debt, the

market share and the appeal of the

cars. Then judge me.”

— Carlos Ghosn