Introduction of the book #0 Why and how the “Third Road” was developed


At sunrise (around 6:40am)

At sunrise (around 6:40am)

As child my first experience of Japanese culture was the Judo class my parents put me in when I was 10 years old. Judo means in Japanese the road of flexibility (柔道). 2 years later, facing a total lack of progress, partly due to a very rigid body, I gave up Judo. This was my first experience of Japanese culture and the most painful so far.

Many years later, in 1989, working for Renault, in charge of the product planning for small cars, I was part of a group of engineers and product planers visiting Japan and the Tokyo motor show.

I remember how impressed we had been by the imaginative capacity and efficiency of those that were only considered a decade before as “very good at copying”. For example, the ability of Honda to launch simultaneously 3 good looking Accord, –one for each sales channel in Japan– of exactly same size but with totally different designs, on 2 completely new technical platforms and families of engines, one with 4 and the other with 5 cylinders.

The commercial merit was unclear to us but the technical and manufacturing feat was remarkable.

At that time Renault would typically launch a new product in a year and a new engine every other year if not more. It would have taken at least 5 years to launch what Honda could introduce in a single shift. Nissan was the second most impressive brand, showcasing a series of concept-cars and replicas among remarkable products such as Cima and Skyline. But in general all Japanese brands were impressive.

Georges Douin, at that time the head of Renault R&D, looked particularly depressed when I crossed him in an alley of the Makuhari exhibition hall. “Gerondeau, what can we do? It seems we are with nothing left to invent”

Just a year later, I took a sabbatical year to do an MBA at INSEAD in Fontainebleau, France, at that time the most international business school in the world with students from all regions and only 15% French nationals.

During the year, I learned to work in groups of students selected on their differences –gender, nationality, education and past experience. I realized that, even if it is more challenging and even difficult at first sight, working with people from different background, is much more rewarding and eventually effective. Diversity brings new points of view, perspectives and solutions which, if always and only in the same environment, one would never think of and imagine.

I chose an elective based on Japanese enterprise and studied “The machine that changed the world” demonstrating how Japanese firms and particularly Toyota had set new standards of management and lean efficiency.

Since then, things have changed and a decade later, Georges Douin, who had been in between appointed EVP of Renault was given the responsibility by Louis Schweitzer, the CEO, to set a strategic alliance with Nissan. In short, just 10 years after looking at Japanese products like a kid in a candy store, Georges Douin organized the rescue of one of the car manufacturers that, less than a decade before had impressed him the most.

In-between, Nissan had become at the verge of bankruptcy. At that time, some bad auguries such as Bob Lutz, number 2 of GM, one of the gurus of the automotive industry, declared that Renault would be better off sinking $5.4 billion in the ocean rather than buying a stake in Nissan.

To many observers, Renault was wasting time, human resources and money. I remember having talked to one of the executive of PSA, the Peugeot group other French manufacturer, suffering from the same weakness as Renault, too small, not international enough. This executive told me that the main shareholder, the Peugeot family considered a similar alliance would have been a too big risk for them and that Jean-Martin Folz, then CEO of PSA, thought the human resource to manage the turnaround could not have been identified and dispatched from Peugeot.

In brief, most considered it was “mission impossible”

 

Under the remarkable leadership of Carlos Ghosn and we will come back later on it in detail in the book, in less than 2 years, all the necessary and sometime painful actions were conducted without alienating the Japanese management in place. In 2001, just 2 years after the announcement of the alliance, Nissan posted its first profit and the objectives of the Nissan Revival Plan (NRP) were achieved one year in advance.

As part of the team dispatched from Renault in the early years of the alliance, head of the Nissan Product Planning and Strategy division in charge of the global line-up and co-leader of the Renault Nissan Product Cross-Company Team (CCT), I was amazed from day one by the extraordinary potential of the company, compared to what I had experienced in 15 years at Renault.

Nissan had a fantastic production system and high level of quality, the R&D was highly capable particularly in the area of powertrain –their V6 engine was elected best engine in the US many years in a row- the employees were hard working, disciplined and dedicated.

From a geographical and product coverage point of view, Nissan was present in each individual country including the USA wher Renault had failed twice, had fantastic brand names such as Skyline, GTR, Fairlady Z, Patrol… was present in all segments including SUV’s, commercial vehicles and had a premium brand, Infiniti. I remember that visiting the regions, I was impressed by the loyalty of employees, the belief that the brand could recover.

 

Why was then Nissan in such a situation? There are many reasons but the main one was the lack of strategy and as a result a lack of focus.

On the revenue side, Nissan had just been running after Toyota, multiplying the number of tasteless nameplates, none of which had enough qualities to differentiate or to beat the equivalent Toyota model. Those products were generally constrained during their development by the lack of cash to really achieve a competitive position, resulting in a compromised attractiveness, giving up what had made the reputation of Nissan: product superiorly engineered delivering the best driving experience. On the cost side, even though the top management knew what had to be done, the courage was missing to shut down plants, dealers, reduce the number of redundant employees and challenge the life long too small and uncompetitive suppliers that only had Nissan as a client. As years later chairman Hanawa-san admitted, Nissan top executives knew what had to be done but only executives not prisoners of their moral obligations could do it. Japanese harmony is strength but can sometimes lead to inaction and desperate situations.

Carlos Ghosn respected and kept most of the Japanese logic of action and executives particularly in the area of excellence of Nissan –quality management, manufacturing, R&D. With very few executives coming from Renault (Moulonguet, Pélata, Le Goff, Klein, Rey and a few others) in the areas where Nissan had to learn –product, finance, marketing and purchasing-, and listening to the people of Nissan, he set a clear strategy, prioritizing very few objectives, which means deprioritizing others, and common guideposts and targets towards which everybody worked hand in hand.

During my tenure at the end of Product of Nissan, I understood the power of confronting different ideas in what I called creative conflicts that I institutionalized in regular meetings. As we were only 3 non-Japanese in my team of 200 in Japan -at some point in time I was even the only one- the only way was to create virtual diversity and give the leadership or co-leadership of some parts of the strategy or product to the regions. We established, on top of North American operation that already had a product team, regional teams in all big geographical regions. Eventually the number of product planners in the regions equaled the one in headquarters. My role, as the global leader of product, was to make sure that the creative conflict took place to end-up with a strong innovation and not a compromised average. This collaborative approach gave birth to very successful products.

In 2005, when I left Nissan, I decided that I should use this experience to serve a purpose, which was to help to implement and adapt what I had discovered and learned at Nissan to contribute to the transformation of other Japanese firms. Indeed, many Japanese companies were suffering from a similar syndrome as Nissan.

I joined the consulting firm Booz Allen and Hamilton in the Tokyo office, where I could learn a lot of methodologies I have been using since then. I worked on several projects, in Japan and other parts of the world, most of which related to value and innovation creation.

End 2007, I was hired by Toyota Motor Europe, based in Brussels, to be in charge of product planning and marketing. In my 3 and half years tenure, I experienced the Lehman shock, the rise in the yen value against euro deteriorating the price competitiveness of the products, the crisis resulting from the massive recall originated in the US, a product competitiveness issue and eventually the impact of the tsunami in 2011. In brief, I experienced 3 years of perfect storm, where Toyota in Europe but also globally reduced its market share, sales volumes and made losses for the first time in its history.

While reducing headcounts and budgets by almost 30%, my team had to redefine what Toyota brand would stand for in Europe, select a single communication agency, start harmonizing the message and the story telling and improve our product line-up by aligning it on the tough European prerequisites and finding our own differentiators.

As many other Japanese companies, Toyota excels in quality and manufacturing but also owns technological nuggets. Hybrid was this golden eggs hen. In Europe, it was underutilized, just one model Prius, with marginal sales because of a polarizing design and high price could benefit from the technology. Instead, the European arm of Toyota was always asking for better diesel engines, which European manufacturers were experts of and were used as an invisible technical entry barrier.

When Volkswagen, Peugeot or Renault were producing millions of diesel engines, Toyota tried to compete with volumes 10 times smaller if not even less. Useless to say that it was an almost lost battle.

After hard time convincing the organization, and with the support of Tadashi Arashima, then president of TME, convinced that Toyota needed to fight for its European employees first, we could have approved the so-called “hybrid strategy” based on the adaptation of hybrid powertrain on models made in Europe. His conviction was that any strategy, which would not be based on local production, would not make sense from an economic but also an ethical point of view, as Toyota’s values are deeply rooted in the company.

Targeting open customers and delivering superior functional and emotional value, hybrid models would offer unique sensations.

The strategy was decided and we could develop and implement it. My successors, among which Daniele Schilacci and Agustin Martin under the leadership of Didier Leroy, developed very successful campaigns and communication raising the emotional value of hybrid around “happy drivers” totally in line with the initial concept.

In 2014, Toyota in Europe achieved its fourth consecutive year of profitable growth and as the press communiqué of TME explains through the words of Sales and Marketing EVP Karl Schlicht: “This is the result of our strategy to bring innovation and much stronger products to European customers. Our continuing growth in hybrid sales shows that by combining our proven hybrid technology with appealing products, we can attract more customers in a highly competitive market.” And recently, Toyota announced the roll-out of locally produced hybrid models in China as a mirror strategy to what had been successfully done in Europe.

In 2018, for example, for its 7th year in production, Yaris hybrid sales are still exceeding 100 000 or more than the target I had set and 4 times initial forecast.

It was for me the second experience after Nissan, where by defining a clear relevant strategy and focusing on it, a company could experience an impressive turnaround. Of course in both cases, it was accompanied by a heavy and necessary cost reduction plan that, alone would not have been enough. Indeed, in Europe, Nissan without Qashqai or Toyota without Yaris hybrid and Auris hybrid would still be in a very difficult situation.

At Nissan and at Toyota, the people and technologies remained the same. Actions were just focused on clear and relevant strategic priorities.

In the summer 2011, Hiroshi Takada, then president of TMSM, the global marketing entity newly founded by Akio Toyoda, called me to join his team in Tokyo. Takada-san knew what was underway and had already been achieved in Europe. If the situation at global level was very different from European case, as Toyota has no CMO and no top-down global marketing culture, he was expecting me to lead the newly established brand project. At Toyota, each region and even distributor had total freedom to develop its own campaigns with very little guideline. Even the color of the brand logo would differ by region. After the recall episode, Takada-san knew that Toyota had no choice but to redefine its brand promise, as quality alone would not be enough to differentiate against always stronger and more global competitors. And he knew that part of it should be thought globally. But we could not count on any top down decision to enforce plans or strategy. Akio Toyoda had clarified the company vision and was hoping that this would lead everyone’s action. But he was rightly still giving priority to swift decision-making in the regions and any sign going in the opposite direction would not be understood.

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It was not an easy starting point but what could have been a handicap eventually became strength. What could not be imposed and decided by a CMO, as there was none and no intention to hire one, had to be built collectively with the regions. We created the Brand Action Meeting or BAM, composed of the marketing heads of the regional organizations and biggest distributors. In less than two years, starting from scratch, BAM established brand architecture, with brand promise, KPI’s, long-term ideal situation, priorities, action plans, roadmaps, product marketing activity, intermediate targets, capabilities and methodologies and, eventually, concrete and visible actions.

In brief, we set in a very effective way and with the buy-in of all, without control or approval process, the frame of our actions and each region delivered on it.

We had defined collectively our own way of global marketing.

I will come back in a later chapter but this was a fantastic human adventure, which of course was not always smooth and linear.

The results became visible in all regions in the way Toyota consistently shifted its marketing into emotional territory.

For each activity, a region was assigned as a leader and both the agenda of the activity and the strategy itself were crowed-sourced from the regions themselves. With very little initial involvement from the headquarters’ top management, we could define and rollout a brand and marketing strategy.

 

Some would say we did not cover all aspects. It is true but we prioritized efficiency over forced synergies. If for example, the team assessed that having a single tagline globally would be more confusing than useful, we would not spend time on it. In another company, a CMO would probably have enforced it but it would have been done with a lot of friction and frustration, eventually at the expense of more important actions. But reversely, if we decided that brand identity, motor show booth design, product messaging, story telling, hybrid leadership, digital business, common methodologies had to be developed, all regions would focus their efforts on their developments, communicate their progress with others and later implement them in the most efficient manner for their local market. In reality, we delivered, without any kind of control, much more than anything I have seen before, as those who implemented the strategy were the ones who had defined it.

We called it “Freedom within a Frame” where the frame is collectively defined and where each region eventually decides and conducts freely its implementation.

Eventually results were astounding and Toyota brand value increased again to an unprecedented high as for example measured by Interbrand.

Interbrand

This convinced me even more that Japanese firms are sitting on a gold mine and it is possible to exploit it. They have the technology that everybody envies, the highly qualified, disciplined, dedicated and hard working workforce, a high level of solidarity as the world could witness after the tsunami in March 2011. Japan is also the country of a very refined culture, cuisine and innovative talents in all sectors (Tadao Ando for architecture, Miyazaki for animated movies, Haruki Murakami for literature…) As the Michelin guide proves, Tokyo is the world capital of gastronomy and I can testify that you find more easily a great French patisserie in Tokyo than in Paris. On top of known sectors where it develops technology such as electronic or automotive, Japan has unique know-how in such areas as logistics (Yamato), education (Benesse), its health and transportation systems are the most efficient in the world and only wait to be adapted in other regions.

And Japan is popular among the young and less young of the world. For example in Paris, it is the only country naming a fair able to gather 250 000 young over a weekend, the “Japan expo”.

But by all metrics, Japan and its great firms are still declining.

If “The Machine That Changed The World” highlighting Japan’s domination in the 80’s was published in 1990, after the “lost decade” in 2000 Michael Porter wrote “Can Japan compete?” and 10 years later, Stewart Black and Allen Morrison, in their book “Sunset in the Land Of The Rising Sun” explain why Japanese corporations will struggle in the global future.

With some exceptions, Japanese firms are suffering in their ability to transform a technical advantage into globally marketable products and services.

They have difficulty to identify the needs and create the functional, but more importantly emotional and brand value. They are struggling with marketing in the original meaning of the word –understanding and bringing innovation to the market-, which was not taught in most universities until recently, have the belief that customers differ so much country by country that it is worthless to try to have a global relevance, do not understand that brand should be based on differentiation and struggle to make choices.

In an article published in the Nikkei newspaper in 2013, the marketing guru, Philipp Kotler, author of the famous marketing management book (now at its 15th edition) also called the “Kotler” from which all marketing and MBA students in the world have studied, analyses the decline of the domination of Japanese firms and diagnoses, among others causes of the illness, that the initial entrepreneurs have not found their successors and that decision process is too slow. He recommends to Japanese firms to hire CMO’s, who would participate to the strategic decisions and adopt marketing as the superior aim of the company.

In reality, based on my experience, I only partially agree with Philipp Kotler. Indeed, Japanese firms need a strategic frame but it is not the role of the CMO to personalize it. In Japanese context, except if the founder is still in place, a super powerful CMO would have little chance to be heard.

For Kotler as for Porter or Blake and Morrison before, the solution is that Japanese need to adapt strategy and marketing. None of them really explains how or brings satisfying solution in a Japanese environment. I had the chance to be an executive in two of the most admired Japanese corporations at a time of a turnaround and could analyze what did work. I know it works because I witnessed it and could contribute to it. This is not a concept deducted from academic research but a recipe based on successful practice.

 

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What did my experiences at Nissan and Toyota show?

– The Nissan revival proved that you can develop a strong strategy while keeping the Japanese logic of action under 3 conditions: build the objectives and priorities together, don’t over control the implementation and find the right people in a few key positions

– The Nissan product experience proved that you can develop strong products in a collaborative manner under three conditions: built the diversity you don’t have centrally in a virtual way with regional offices playing a global role, develop the right tools and organize creative conflict.

– The Toyota Europe experience proved that a good product or technology that is successful in a region has all reasons to be successful in others under three conditions: select the right one, build the value consistently from product to communication and adapt locally.

-The Toyota BAM experience proved in real world that the “Freedom within the Frame” concept really works under three main conditions: There needs to be a leader not to decide everything but to listen, guide and ensure that the result is not compromised, start from long term shared ideal situation and build a process with rituals and short term visible results to be proud of.

Based on this observation, I decided to develop the “Third Road of Management”. I gave this name as it follows neither Japanese nor western road but a third one.

And in today’s world, the strategy needs to be organically defined with the teams in a collective work and reviewed on a regular base. Ideas come from everywhere, things move quickly. The time of think centrally act locally is over. Rigid processes and controls only work apparently and require a lot of energy and time for minimal results if people don’t adhere to the direction. Speed has become such an important factor that all resources must be allocated to innovation and value creation. More importantly, everyone has to work in the same direction. Trust has become the key word. I then realized “The Third Road” could become the key to success in the 21st century not only for Japanese but also most companies from over the world.

As such, it is in mainly intended for Japanese companies who want to get global but eventually should become a new way to manage strategy and marketing for all companies who want to get the best of their global resources.

I still think that Japanese firms have an advantage as they have always relied on collective strength and less on individual power.

In the coming chapter, I will explain in detail how it works, give example of how it was implemented at Nissan and Toyota and in the last part, I will review the prerequisite and common conditions to implement it.

GG

 

 

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