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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 2- INTRODUCTION 3- PROBLEM STATEMENT 4- SWOT ANALYSIS 5- CONCLUSION 6- RECOMMENDATION 7- OTHER REFERENCES

Page 02 Page 03 Page 05 Page 08 Page 09 Page 13 Page 14

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ABSTRACT

Failure was not an option,

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

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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, NISSANs 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 industrys best success storiesa non-Japanese and a non-NISSAN person had come to rescue a fallen champion of the Japan auto industry in the world.

A Japenese comic book Big Comic Superior/ serialized Ghosns 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)

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.
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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 companys equity capital. Earlier, two of prominent car producers (Daimler Chrysler and Ford) had taken a look at NISSAN and backed off.

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 Japans second biggest carmaker.

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 didnt break him to take the task with full responsibility.

Mr. Ghosn is now a NISSAN man. Hes left Renault. Hes 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 NISSANs values against its problems:

The failure to concentrate on profit making

The companys neglect of its customers

Its weakness in crossfunctional work

The general absence of a sense of urgency

In several crucial areas, it is on the cutting-edge of technology The lack of a common, long-term vision

A significant international presence deployed on global scale

Nissans 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. Toyotas 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 essentiallyqualitative. Even Ghosn had trouble figuring out what they were trying to do. There were no priorities, no coordination or timing. They didnt put a name or a team in front of each goal. There was no internal communication and no financial closure. If you dont define quality and assess its current level, if you dont state the goal you want to reach in raising that level, if you dont set timetables and deadlines and assign groups to do the work, if the plan isnt articulated, divided into sequences clear enough for people in the company to grasp-well then, nothings going to happen. Or in any case, not much will happen.
Carlos Ghosn and P. Ries, Shift: Inside Nissans 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) NISSANs 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) NISSANs engineers were imposing specifications that didnt take into account the current industry standards and werent necessarily a response to any specific customer demand (engineering didnt listen to what the suppliers were saying). 4) NISSANs 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 companys 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 NISSANs future.
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With NRP, Ghosn unveiled (on 18th October 1999) that the plan promised to restore the companys 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 NISSANs 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?

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 didnt change, nobody would have a job.
Carlos Ghosn

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.

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SWOT ANALYSIS

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 companys downsizing 4) A culture of blame 5) Unstable economy

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) Nissans alliance with Renault 4) Established network of suppliers and dealers/sellers

S-O
With NRP, Ghosn utilized NISSANs strengths by coordinated them with opportunities to associate power and influence in order to leverage the companys potential. Toyotas strength lies in the fact that most of its dealerships are independent, so the room to grow is always around.

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.

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 companys neglect of its customers 5) Its weakness in crossfunctional 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.

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.
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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 companys revival, he mobilized NISSANs own managers, through a set of crossfunctional teams (with NRP), to identify and spearhead the radical changes that had to be made. 2) Renault remain sensitive to NISSANs culture at all times, allowing company room to develop a new culture that built on the best elements of Japans national culture.
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.

To NISSANs 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 mid2004, 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.

Credibility rests on two pillars: 1) Performanceif you dont perform, youre 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 NISSANs executive committee with the rank of executive vice president), representi ng the principal functions connected to each teams assigned area of concentration. Each time was provided with a pilot, a senior manager whose area of competence was most directly linked to the teams defined goal.
2 leaders + 1 pilot 2 leaders + 1 pilot

+10

New Areas New Products

+10
TEAM 02 Focused on purchases

Represented 60% of a manufacturers expenditures

New Markets

TEAM 01 Business Growth

2 leaders + 1 pilot

+10

TEAM 04 Research & Development


2 leaders + 1 pilot

CFT

TEAM 03 Manufacturing & logistics


2 leaders + 1 pilot

+10

TEAM 05 Sales & Marketing


2 leaders + 1 pilot

TEAM 06 General & Administrative Services

+10

TEAM 07 Finance TEAM 08 Phasing out of a product, a piece of equipment, or a service

2 leaders + 1 pilot

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.

TEAM 09 Organization and value added

2 leaders + 1 pilot

+10

2 leaders + 1 pilot

+10
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Ghosns 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.

3 PRINCIPLES OF GHOSNS STRATEGY


Work Fast Do not assume anything Deliver strong results, which would earn the respect and trust of employees Ghosns 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 employees attention to the new commitments. In addition, the compensation system was revamped to put focus on performanceshare 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 12 Intellectual Assets Management TEAM 11 Supply-chain management TEAM 10 Associated business

TEAM 13 Fleet Business

TEAM 14 Business Growth

NISSAN 180

CFT

Mobilizing the best through CFTsthough 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.

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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 companys 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 79th) and Toyota (at 87th). 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 companynot only to his direct reports but also the midlevel managers, to the people who build the companys products and to those who deal with the companys 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 companys 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.

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.

Therefore for the future intake of NISSANs 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 NISSANs value, the agility power of shareholders should also be compensated with fair dividends to boost equity.
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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-transculturalleader-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-carlosghosn/

Dont 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

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