The “Super CEO” Who Saved Nissan and Revived a Legend, “the Godzilla”
A multi-million dollar gamble
In 1999, Nissan, a Japanese carmaker was on the verge of bankruptcy because of a multi-billion-dollar debt. In order to survive, Nissan made alliances with a french carmaker, Renault. They blessed Nissan with Carlos Ghosn who not only saved the company but also turned a massive debt into a $2.7 billion profit in just 3 years.
Nissan Motor Corporation is a Japanese multinational automobile manufacturer based in Nishi-ku, Yokohama. The company sells its cars under the Nissan, Infiniti, and Datsun brands with in-house performance tuning products labeled under Nismo.
Nissan was the sixth largest automaker in the world in 2013, after Toyota, General Motors, Volkswagen Group, Hyundai Motor Group, and Ford. Also, the world’s fourth-largest if the Renault–Nissan Alliance is considered.
But back in 1999, Nissan was on the verge of bankruptcy with more than a whopping $35 billion debt. Nissan was going under by struggling to turn a profit for the past eight years with its outdated cars. An organization with a brand that had tremendous history and respect in the automobile world was going to fade away.
The faltering Japanese carmaker was forced to look for alliances. As Daimler-Chrysler dropped out of the picture, Renault was Nissan’s only hope for survival. Renault assumed $5.4 billion of Nissan’s debt in return for a 36.6% equity stake in the Japanese company. Nissan’s strength in North America filled an important gap for Renault, while Renault’s cash reduced Nissan’s debt.
Even with the $5.4 billion, there were still billions of debt remaining. To tackle that, they appointed Carlos Ghosn as their new CEO to turn the business around.
Carlos Ghosn is a Brazilian-born businessman who also has French and Lebanese nationality. He worked as an engineer at Michelin for 18 years before starting at Renault in 1996. He made a name by leading a massive restructuring for the merger with Uniroyal Goodrich Tire.
Taking the lead in Nissan’s revival made Ghosn somewhat of a national hero and was featured as a “Super CEO” in the manga, a type of Japanese comic book. He appeared on a Lebanon a stamp as well.
As of January 2020, he is an internationally wanted fugitive, but to every kid who had a “Nissan Skyline GT-R” toy car, he is known for saving an iconic brand.
“It takes a lot of risks to turnaround a sinking company from huge debts to a few billion dollars profit. There is a time for cost reduction and then a time for growth, Carlos Ghosn had to do both at once.”-Author
Nissan's Dramatic Turnaround
When it comes to mergers or alliances, success is not simply a matter of making fundamental changes to its organization and operations. Its an extremely delicate situation that could end or make someone's career.
In this particular case, every decision looked like a multi-million-dollar gamble. After all, Carlos was an outsider, non-Nissan, and non-Japanese. If he tried to dictate changes from above, the effort could backfire, undermining morale and productivity. He still went with a few changes that proved to be the reason for his success.
The Five Crucial Changes That Saved the Company
- Cost Cuttings and Reinvesting
This was a mandatory step that most of the employees saw coming. If the company can’t pay the salary, it makes sense to let them go. Ghosn slashed 21,000 jobs, roughly one in seven, shut 5 factories, cut purchasing costs, and reinvested the savings into 22 new cars and trucks. - Breaking the Traditions
Ghosn discovered the Keiretsu. The company actually had plenty of capital in keiretsu partnerships.
Keiretsu is a Japanese term referring to a business network made up of different companies that have close relationships and sometimes take small equity stakes in each other, all the while remaining operationally independent.
Ghosn started dismantling the keiretsu investments, risking the widespread damaging their relationships with the suppliers. But it didn’t damage the relationship and they started to get some funds to survive. - Updating the Design
As the company was struggling, strapped for cash, Nissan had to cut back on product development. Ghosn noticed that all Nissan’s entry-level cars on the production line were 9-year-old designs while the competitor’s design was 2 years old. This was a big deal. Ghosn started investing the money in product development. Nissan started to build new designs on the production line. - Ditching the Seniority Rule and Compensation System
Japanese culture respects the aged. Nissan paid and promoted its employees based on their tenure and age. The longer the tenure, the more money they received, regardless of their performance. According to Ghosn,
“What car buyers want, after all, is performance, performance, performance. They want well-designed, high-quality products at attractive prices, delivered on time. They don’t care how the company does that or who in the company does it. It’s only logical, then, to build a company’s reward and incentive systems around performance, irrespective of age, gender, or nationality.”
That is why Ghosn decided to ditch the seniority rule and revamped the compensation system to put the focus on performance. - Cross-Functional Teams
This is the most important change that helped the company to cut the cost down to a significant percentage and made the employees accountable. He had put together nine Cross-Functional Teams. Their areas of responsibility ranged from research and development to organizational structure to product complexity. Together, their goal was to address all the key drivers of the company’s performance. Nothing was off-limits and they were given two “leaders” each who were drawn from the executive committee. These leaders had to sponsor and remove any institutional obstacles to smooth the way for the team as it conducted its work. The Cross-Functional Teams had to come up with a solution to fix the problems they were asked to solve. The efficiency of brainstorming and teamwork led to many great steps.
Reviving the Legend, Nissan GTR
After Nissan’s financial success, Ghosn made a big statement to the automotive world by deciding to revive the company’s old model of Skyline GT-R.
Manufactured between 1969 and 1972, it enjoyed legendary success in local Japanese touring car racing. The Skyline GT-R proceeded to win the Japanese JTCC Group-A series championship for four years in a row. An Australian motoring publication “Wheels” nicknamed the GT-R “Godzilla” in its July 1989 edition. The Skyline GT-R became the flagship of Nissan performance, showcasing many advanced technologies including the all-wheel-drive system and the four-wheel steering.
Ghosn handed over this mission to Kazutoshi Mizuno. He has been a race engineer, team director, and a car designer for over 40 years. He created a supercar that reflected the customer's needs, split-second gear shift, hand-built engine among the best aerodynamics of any production car. GT-R has a CD number of just 0.26, it takes the fight to the likes of Porsche, Lamborghini, and Ferrari at a price that undercuts them all. It has a practical four-seat layout and a trunk big enough for a set of golf clubs, and still, it is capable of exceeding 300 kph with anyone at the wheels. Kazutoshi Mizuno is also known as the godfather of the GT-R.
Conclusion
Carlos Ghosn brought the company back to life by taking risks and going against the grain. Many called it a multi-million-dollar gamble and he just got lucky. While the ones who understand the business and knows that luck is a very small factor of a highly well-planned strategy backed by a person's experience knows he is indeed the “Super CEO” the manga described.
