At a time when many are writing about the future of the Renault Nissan Mitsubishi alliance, it is good to remember what made its success 20 years ago. Sometimes, it is not necessary to reinvent everything.
This is an extract of the book to come, which I wrote a few years ago. It is part of the inspiration of the third Road of Management.
The Nissan turnaround and the alliance with Renault, respect the logics of actions
In March 1999, the automotive industry was gathering for one of the most important annual auto event, the Geneva motor show. One of the main topics of conversation on that year was the fate of Nissan. With 22 billions US$ of debt and 6 consecutive years of losses, Nissan was close to bankruptcy. Earlier in 1999, Yoshikazu Hanawa, the president of Nissan had no choice but to publicly offer for sale a big stake of the company and ask for a rescuer. In an article in Time magazine, dated 8th of March 1999, titled “Nissan Stalls Out”, the journalist Frank Gibney, writes: “The word around the auto industry is that the $49-billion-a-year company ought to be left to wither. Says James Harbour, a leading U.S. automobile analyst: A merger with Nissan is absolutely the worst idea I’ve ever heard of.” Later in the article, he explains how Daimler could be the rescuer to accelerate the plans of Jürgen Schrempp to make the company he is in charge of, grow in Asia. Just as an anecdote, the journalist adds “Even tiny Renault piped up that it had French-government backing to acquire a controlling stake in the world’s seventh largest carmaker.” Obviously, only few took, and the journalist was not one of them, this hypothesis seriously. In reality, teams in most sectors of Nissan and Renault had been working in secret on potential synergies and areas of collaboration. I was at that time the managing director of Renault in Austria and attended the show with my marketing and PR teams. On Tuesday the 9th of March 1999, evening of the first press day of the motor-show, we met for a dinner with key Austrian Journalists and our guest was Carlos Ghosn at that time EVP of Renault. He explained in simple terms that if Daimler gave up, an alliance between Renault and Nissan would totally make sense, as there was a “perfect fit” between the two carmakers. Whether it was about product line-up, regions or areas of expertise, the strengths of the 2 carmakers would perfectly complement each other.
7 years earlier, in 1992, Renault almost acquired the premium auto and truck maker Volvo. Largely because of an arrogant attitude of the French company, opposition rose in Sweden among employees, unions and eventually stakeholders. As a result, to the surprise of all observers, the deal eventually broke up a few days before being closed. Later Renault had learned a lot after a deep analysis of the causes of the failure was done at the French maker’s HQs. A certain lack of respect for other’s culture was identified as one cause of rejection. It was therefore understood that mutual respect for differences in culture and recognition of competencies of the partner was the prerequisite to any future potential alliance. It was also clear for the top management of the company that Renault could not survive alone because of its size. The Asian crisis of 1998 opened doors to a strategic partnership. Such an opportunity may not happen before long. Louis Schweitzer, the visionary CEO of Renault knew it and had identified internal and external growth outside of Europe as the number one priority for the company. And also Renault had in his ranks Carlos Ghosn. Many years later Louis Schweitzer explained that he would have never engaged in discussion with Nissan in 1998 if Carlos Ghosn had not been here. Contrary to Carlos Ghosn who thought he had 50% chance of success, Schweitzer was convinced that Ghosn would succeed at Nissan. Back in 1996, Carlos Ghosn joined Renault after the company experienced its only year of loss for more than a decade. The French company hired him to reduce costs and put back the company on the tracks of profit. Carlos Ghosn was the number 2 of the French tires manufacturer Michelin but he knew that he had no chance to become number one as the position was reserved for the family’s heir Edouard Michelin. After graduating from the prestigious French Engineering “Elite School” Ecole Centrale de Paris, Edouard Michelin was getting trained and prepared to become the CEO of the eponym company.
On that day of March 1999, in Geneva, we knew that Renault had no chance to make an alliance with Nissan as long as Daimler decided to stay in the race. By its reputation and its size, Daimler was much more acceptable by Nissan shareholders than the “tiny Renault”. But in reality, Renault was not that tiny and ended up being a very good partner. First it produced about the same number of cars as Nissan or about 2 and half millions every year and second, after the losses of 1996, the financial situation of the company had considerably recovered. Renault posted a comfortable profit of 1,5 billion dollars in the fiscal year 1998. Those record profits were the result of the combination of the cost reduction efforts led by Carlos Ghosn and an innovative and attractive product line-up, heritage of the former visionary head of product planning Jacques Cheinisse. And again, Renault had learned from its past mistakes when it comes to cross-cultural alliances.
On the 10thof March 1999, Daimler announced it broke-up all discussions with Nissan. Daimler’s board, which considered, like the majority of auto analysts that the deal was too risky, had disowned Jürgen Schrempp. Daimler was still in the process of integrating Chrysler and later partnered with Mitsubishi Motors to form the so-called “Welt AG” or “World Inc.” in English. This news came as a surprise to most auto executives present in Geneva. But for us, it was an important day. We all understood that Renault would form an alliance with Nissan and the company would enter in a new dimension. It was officially announced a few days later as the 31st of March last day of the fiscal year in Japan was a deadline for Nissan to avoid bankruptcy. Renault purchased 35% of Nissan for a little more than 5 billions US$. Robert Lutz, considered as a automotive guru, said on that occasion that Renault would be better off sinking $5.4 billion in the ocean rather than buying a stake in Nissan. Every one knows the story and what happened next. A few years later the “Welt AG” had disappeared, Italian FIAT bought Chrysler for one dollar; Mitsubishi Motors was rescued by the eponym Mitsubishi companies and was finally resumed in 2016 after many scandals by… Nissan. Nissan grew in profit and more than doubled in sales and has since set, together with its partner Renault, an alliance with…. Daimler.
There has been a lot of literature on why and how Nissan recovered. David Magee wrote the very good “Turnaround” and Carlos Ghosn himself wrote a couple of best sellers such as “Citizen of the World” or “Shift”. As I did in the previous chapter, I am not going to do a comprehensive list of all the reasons of such an impressive success but will make an analysis in the context of the book. I will highlight the points that were the most important in the way they inspired some key ideas of “The Third Road”.
There are two areas in which the “rescue” of Nissan is unique. The first one is the structure and the building blocks of the alliance between Renault and Nissan. The second is the way Nissan’s objectives and plan were managed through an iterative succession of bottom-up and top-down moves.
The Renault-Nissan alliance: When the alliance was finally concluded in March 1999, as explained earlier, the teams of the 2 companies already knew each other relatively well. During several months, they had exchanged information and built assumptions of where synergies and most importantly, sharing of best practices could occur. Also, Renault, starting with Louis Schweitzer, was still traumatized by the abortion of the merge with Volvo and wanted to avoid a second failure. In 1991-1992, Renault, which was the bigger member in the merge had forced Volvo to accept its technical solution even in the high-end segment. In Volvo’s engineers mind, Renault was good at making small cars. The Volvo dealer network was selling those smaller Renault models, which had no equivalent in Volvo line-up. It represented for those dealers good additional revenue. But they had the pride of considering that they were the experts of designing better technical solutions in the premium segments. In their eyes, Renault had little legitimacy in this part of the market. Yet, Renault engineers could demonstrate that they could develop an efficient platform for Renault future larger models as well as Volvo vehicles that could fit in its factories. This represented on the paper a huge “synergy”. This was simply ignoring that the cost was probably very high at Volvo, that it would mean that past Volvo developments should be scrapped and simply the reality of human nature that people need to be respected and considered beyond theoretical quantified savings. Eventually the decision was made to develop and produce all Renault and Volvo large models on a single platform based on Renault technical architecture. But the damage on Swede morale was high. Eventually, the resentment translated into opposition and abortion of the partnership.
There are three main benefits of a merge or an alliance. The first one is to learn from the other and improve its expertise and performance in a given area. The second is the possibility to benefit from the other’s existing infrastructure to increase its own sales without having to reinvest or reinvent from scratch. For example using regional presence or given technology to grow markets and segments where one has an offer. The third one is the so-called synergies. They are made of economies of scale that avoid R&D or investment duplication and increase economies of scale and negotiation power with vendors.
In general, synergies take more time to materialize than what is foreseen at first. Very often, the benefits of those “theoretical” synergies are more than offset by the loss of optimization of the preexisting solutions. Ignoring the history, the culture of a company to force synergies is often a recipe for failure. The cost of implementing the synergies and the demotivation of the following partner that it will lead to is often underestimated. This is why so many mergers that, on the paper, make sense thanks to future synergies end up in failures and destroy values. Reversely, using the partner as a source of inspiration and learning is of ultimate importance and can bring immediate benefit. This is what I tried to implement years later when I was give the chance to manage Toyota brand strategy and implementation. In the case of Renault-Nissan, beyond the more traditional “restructuration” type measures announced in October 1999 a few months after Carlos Ghosn had arrived at Nissan, the methodological support Renault was of paramount importance. Renault did not send an army of executives to take over the key positions at Nissan. First, it is not sure whether the company could have afforded to do so, but more importantly, it would have been done at he expense of the quality of the team and could have led to a rejection reaction from Nissan’s employees. Renault had identified the strengths and weaknesses of Nissan management and capabilities. Nissan was excelling in engineering and particularly powertrain engineering, petrol engines and transmission, quality management and manufacturing. Nissan had a good knowledge of several markets where Renault was not present such as the US, Japan and most of Asia. Likewise, Nissan had a strong expertise in sport cars, 4X4 vehicles such as SUV or pick-up. But as Hanawa-san, its then CEO said in an interview to Automotive News, “The biggest weakness of Nissan was marketing. We needed to develop vehicles that would be accepted in the market. We had to identify the needs of the market, and this ability was lacking.” Reversely, Renault was rather good in product planning and marketing. It also surpassed Nissan in purchasing, where Nissan had historically little experience of negotiation due to its traditional suppliers structure, finance and accounting. Nissan did not always know the real cost and profitability of the cars it was selling. Marketwise, Renault was mainly strong in Europe, in small and medium cars and MPVs and in diesel technology.
With limited resources and such different strengths and capabilities, engaging into a forced and accelerated race to synergies would have led to real “religion wars” between the teams. I remember having attended a discussion about the type of electric connectors to be adopted in the future common platforms of the alliance. I would have never imagined that this topic would create such a level of passionate and endless debates. Both makers, because of past quality issues that had been solved years earlier, were convinced that they had the best solution. And nobody wanted to experience again quality problems. Years later, I was asked by Carlos Ghosn to find a common solution for the type of rear suspension of the compact SUV’s of the alliance between vertical or tilted type shock absorber. We could eventually converge to a common technical solution but it took time and it was achieved after both technical teams agreed on a common durability test pattern. With those examples, we can see that communizing processes or technologies is not an easy task as both teams try to resist for very understandable reasons. Merging teams also face resistance as job duplications immediately become clear. People spend more time trying to secure their job than trying to make the merge successful. This is why from the beginning of the alliance, it was clearly establish that synergies could not be done at the expense of efficiency and not be done without the buy-in of the teams.
On the contrary, putting on the table simple indicators, both teams could immediately see in which area which company was excelling. Clearly, Nissan’s manufacturing productivity and quality levels for example were to be taken as best practice when Renault cost structure and product attractiveness would become a new reference for the alliance. Very quickly, there were teams of Japanese production engineers and technicians in the Renault plants to help improving the quality and productivity management when with the support of Renault buyers, accountants and product planners, the cost management and product conception processes of Renault were adapted at Nissan.
In short the alliance would not become a merger where dogmatic synergies would be forced down the road but an alliance where the teams would learn from the partner and most importantly respect each other. Concretely, the entities would remain independent. Decisions for Nissan would be taken in Tokyo and for Renault in Boulogne in the suburbs of Paris.
My analysis is that Nissan people understood very quickly that they were in charge of the turnaround of their company. The goal was not negotiable as Renault was expecting a clear return on its investment but the way to achieve it was their responsibility.
In practice, the alliance was never described as an alliance of equals, at least in this initial phase. Louis Schweitzer was clear that Renault was the leading company. If Renault saved Nissan, it was of course to get financial return through dividends or stock price increase but the main target was finally the survival of Renault. In Louis Schweitzer’s mind, the alliance was a way for Renault once Nissan would be saved to increase its market presence in new continents and segments. With 85% of its sales in Western Europe and mostly in compact cars segments, Renault could not sustainably compete with giants like GM, Ford, Toyota or Volkswagen.
But first, Nissan needed to be saved. By limiting its stake to less than 45%, Renault did not consolidate Nissan’s debt in its balance sheet. Still, Renault knew that it needed to be pragmatic. And once again, Renault sent a limited number of executives. Officially, in total 30 people were sent to Nissan from the French maker. In reality, this number included some middle management or even young professionals to learn from Nissan. The number of executives really sent to Nissan with operational responsibilities was less than 10. They were mostly in the area of finance and accounting, purchasing, product planning and marketing. In the areas of expertise of Nissan, 100% of the top management remained originated from Nissan and mostly Japanese. Those are the one that welcome the young professionals who came to learn from the Japanese partners as part of their training. In return, Nissan eventually sent the same number of employees. The head of Renault Power train engineering was a Japanese coming from Nissan. Renault had learnt from the Volvo disaster and had become humble enough to be ready to be taught by the partner. As a result, the French executives very quickly felt like belonging to the Japanese company. There was no such thing as reporting to France to hear what had to be done. There was even a joke at Renault that the French executives sent to Japan to hold responsibilities at Nissan were much tougher in negotiation than their Japanese colleagues. Very quickly in their areas of responsibility, the improvements became impressive. By comparing purchase costs, Nissan could renegotiate with suppliers while helping them to improve or consolidate, the management accounting made quick progress to identify sources of profit improvements so that unprofitable variants, even on a marginal basis in some cases, could be discontinued. Products quickly started to be designed with a clear idea of whom the target customer was and which innovative solutions were to be proposed for his unmet needs. In marketing, such simple KPI’s as brand metrics were introduced and a first clarification of what Nissan brand should stand for was established.
In brief, the first merit of the alliance for Nissan was that it learned very quickly from Renault in its areas of weaknesses.
But those were the benefits that Nissan developed on its own partially learning from Renault’s expertise. Other merits came from new market opportunities and synergies if we follow the categorizations described above.
How then would those benefits materialize?
Concretely, the two companies identified the areas where benefits could be expected for one or both partners. They would create working teams, called Cross-Company Teams or CCT, made of members of both companies. Each would have a leader coming from the company recognized as the strongest in the given area or territory and a vice-leader from the other company. Those teams would meet monthly with a clear agenda. The CCT would have to quantify the merits of the actions they would propose and implement. For example, in the case of product planning, which was the only CCT with 2 c0-leaders, one of them being the author of the book, the teams worked on shared methodologies, product synergies and differentiation rules. The teams of the CCTs regularly reported to the CEOs of Renault and Nissan. In the case of Nissan, Carlos Ghosn wanted to have some quantified objectives and measures of the actual benefits. Every other month a top executive meeting, called Alliance Board Meeting, chaired by Louis Schweitzer and gathering 3 EVP’s of each company would take place to review the proposals of the CCT’s. The ABM meeting could also set the pace of the improvements and ask for more efforts if they felt that the speed of progress was not high enough. Compared with established ambitions, the management was challenging the organizations. But at no point the top management would enter in a micro-management type of behavior telling the teams what to do.
In a nutshell, the strategy was discussed at higher level and was based on rough directions as proposed by the teams. In return, the teams were free to implement the methods they wanted to according to their needs and local conditions. I remember that at some point we had combined the teams who would take picture and make videos on motor show to analyze competitors’ activity. On the paper it really made sense and there had been very little discussion about it. We quickly realized it was not a good idea as the objectives were different. In one company it was more to educate product planners and executives on general trends as the process of the other company made it necessary to analyze detailed design execution to understand the benchmark of what competition was doing. Both companies became frustrated of the result starting with the combined teams of photographers and cameramen who received contradicting instructions. We quickly came back to separate teams and decided to share the non-confidential information and learned from the partner’s practice how to improve both education and detailed competition’s design analysis. We never asked for approval for this detailed step backwards. But we knew we would have to scratch our heads to compensate in another area. And we did it.
It is therefor important to understand that at no point Renault and the few expatriates sent from France tried to deny Nissan’s logic of action.
Nissan remained a Japanese company in its culture. If the logic of performance was something new at Nissan where accountability and sense of urgency were missing even in the worst years, the pre-existing logic of action remained the base for most of daily operations. We have seen in the first part what makes a “typical” Japanese company move forward. Lifetime employment, nemawashi, consensus building, long-term relationships are as many elements that help building harmony and eventually quality. As long as the objectives that were collectively agreed were achieved, I have no witnessed any forced move towards a different logic of action. Some elements that are rare in Japanese economy had to be implemented. For example, plants have been closed and some jobs eliminated. But as Yoshikazu Hanawa, then still chairman of Nissan, said in an interview, this task had to be done by a foreigner. As for the reduction of the number of suppliers, once the target was clearly stated, the Japanese management implemented it promoting take over of merge of too small vendors. And if cost purchased parts cost reduction targets were not achieved, Koeda-san, purchasing EVP and his team would simply inform suppliers that such a price cut was not negotiable as the survival of Nissan and eventually theirs was at stake. Carlos Ghosn also wanted to implement quickly promotion to merit for few high potential executives. He also put in the HR system a reward system based on performance on top of the traditional equalitarian bonus system. English became also much more broadly used but Japanese remained the mostly used language by far at “working level”. For most of Japanese executives, the changes were not that visible in their daily life. The nemawashi and other Japanese practices remained used. In fact, they were even practiced by French executives, who, for most of them enjoyed learning from their Japanese counterparts. In his book “Organizations, Strategy and Society”, the French professor of HEC, explains that when a logic of action, in this case the “group” or almost “family” logic of action is well followed in the organizations and that at the same time it puts at threat the organization, one of the best way to escape is to “hybridize” it with another one. It means keeping it for most of actions while adding other objectives. It is exactly what happened at Nissan during this period. Carlso Ghosn had concentrated on few objectives and let the preexisting logic survive as long as it did not jeopardize the achievements of the objectives. It rather built on what had made the strengths of Nissan while adding the necessary sense of accountability and performance that was needed to thrive and grow. I visited recently Nissan Technical Center in Atsugi, after more than 10 years and was struck to see how the organization had changed since this period. Gradually, the logic of performance had taken over the original logic of action of the “group”.
Coming back to the good work between teams, I remember an anecdote. As explained earlier, Yamagata-san, head of R&D was in accountable of part complexity reduction and he asked my teams to select the variant that would be the least painful to drop. We proposed a list, in which there was an option that was sold at one unit per day. It was a technological jewel that never found its customers. The Extroid CVT was an automatic transmission based on the principle of the principle of the continuously variable transmission, it was made of rack and pinions, it was therefore more reliable. Unfortunately, it was expensive and because of lack of resources it was only proposed on one model. Yamagata-san replied that he would not discontinue this technology that was a unique Nissan technology. I never knew the fundamental reason why Nissan R&D wanted to keep this transmission alive. I assume that it was presented by one of its executive with pride and that it would have been painful for Nissan engineer to “loose face” and abandon it. Like in the case of photo and video reports of motor-shows, a pure logical decision should not be implemented. Yamagata-san told me they would compensate but asked me to keep this variant until the end of life of the model on which it was proposed even though the sales were confidential. Any traditional process with a top-down decision process would have concluded, from a rational business point of view that having 2 shooting teams for motor shows and keeping Extroid Transmission in the line-up would not make sense. And sure keeping them are not the most rational decisions to be made. But I learned that apparently rational decisions are not always the best ones. In both cases, the teams found solutions to achieve the targets with alternative countermeasures. Implementing them would have had huge negative consequences. The first on them would have been that people would have seen the alliance as an evil preventing them from bringing innovation or optimizing their activities. Perfection does not exist and what counts is what is effectively executed at the end of the day, not what makes sense on the paper. Giving up on small things to get big results elsewhere thanks to people motivation and initiatives is the best result an executive can expect. Years later, when I was in charge of brand strategy at Toyota, I was asked many times why I let some weak presentations take place or why I did not implement some measures that apparently would sound logical. I always answered that what counts is what people implement. I had learned from that time. Making a decision that people do not want to implement is a waste of time even if the decision appears as the good one. As long as people agree and deliver on the targets, objectives and priorities, the most efficient actions are the ones that people buy-in and implement freely. They are not the ones that you think are the most sensible. Eventually, Extroid CVT disappeared and I got much better result by having respected R&D pride and freedom than by having acted “logically”. At Toyota, I would never get a tenth of the results we had if I had followed my rational initial thoughts. As we will see in a next chapter, the brand journey of Toyota got much farther and faster than what was expected initially. The journey was different from initial idea as it was built collectively but the achievements ended up being more ambitious. The role of the true leader is to motivate, stay agile and understand the right path to get buy-in but not to decide the details.
I really started to understand that, in big corporations, perfectionism and control on everything is just an illusion. Sam Palmasino, ex CEO of IBM in the years 2000’s used to say that in too many companies, “people do what you inspect, not what you expect.” With control, approval and time consuming detailed reporting processes on everything, many executives think they are holding the steering wheel and feel reassured. In reality, they are not in control. Having people acting freely in a given frame to which they have collaborated as in the case of Nissan in this period is the best way to spread effectiveness. This is the key counter-intuitive lesson of the “Third Road”. It is the principle of “freedom within a frame”
In 2004, five years after the beginning of the alliance, Nissan attained an operating profit of 11.1% one of the largest in the world for an automotive company. At the same time Renault’ operating profit reached 5.9%, one of the highest in Europe, which, as all know, is one of the toughest regions for automotive business in the world. If Nissan benefited from lower purchasing costs and started to launch much more attractive products, Renault could proudly say in the mouth of Louis Schweitzer in its annual report: “the competitiveness of our factories is among the highest in the world”. Without any drama or tears, both companies were close to their historical best financial performance.
I the early 2000’s, there were 3 “alliances” between a local Japanese car manufacturer and a western companies. And in three cases, the pattern was apparently similar. A struggling Japanese company had been rescued by a western more wealthy organization. First, and it had happened in several phases, from 1979 to mid 1990’s, Mazda had asked Ford for financial and then management support. Then, after the Renault Nissan alliance, Daimler took a minority stake in Mitsubishi Motors that became part of the “Welt AG”. In three cases, the western company held a significant minority share of the Japanese maker in the area of 40% that gave them the real power without having to merge. In all three cases, they exercised a form of management of the Japanese company. But the similarities remained there. In reality, the philosophies were very different. Let’s compare them quickly.
Renault-Nissan: As we saw, Renault sent a limited number of executives and respected the preexisting logic of action. Both companies learned from their partners to improve their own operations. The strategy was the result of a selection made after the teams made proposal. Synergies were not forced but were the result of agreed expectation of benefits. Teams could act freely and transparently in the frame of the agreed strategy. Strategy was discussed and approved in bimonthly (every 2 months) meetings.
Ford-Mazda: First, Ford limited its support to mainly financial support and “friendly” exchange of personal. In the 90’s Ford increased its stake in Mazda and got more involved sending highly competent executives at top position. Current CEO of Ford, Mark Fields was CEO of Mazda was CEO from 1999 to 2002 during the beginning of Ghosn tenure. The management of the alliance was very light. There was a quarterly “strategy” meeting but relations remained very “friendly”. Contrary to Renault-Nissan where the ABM is positioned “above” the 2 companies and sets the direction of the strategy, this meeting was positioned below Ford executive committee as a side instance. In reality, the way Ford managed the relation with Mazda was not different to the way it managed its own regional operations. It was reflecting the fluctuations in Ford development principles. In the 90’s Ford had gone for an extreme “world car” idea epitomized by the Ford Mondeo (Europe) and Ford Contour and Mercury Mystique in the US which were in reality the same car. But products were not strong enough and the markets were still very different at that time. Likewise, Ford and Mazda had common products at that time. A few years later, there was no common part between a sophisticated European Ford Focus and a very weak American Focus based on a different and very old technical platform. As a result, Ford was managed in regional silos, each having their own problems. Finally, Ford managed different platforms depending on the regions; complexity and R&D spending were high. In that frame, even after several decades, technical and manufacturing integration of Mazda and Ford remained relatively low. For example, Mazda continued to utilize its own diesel technology and, when the yen was weak in the mid 2000, repatriated its production to its main plant in Hiroshima. In 2008, Ford had to sell its stake in Mazda in the wake of its turnaround plan. At that time, Alan Mulally, the recently appointed CEO of Ford decided to implement the “One Ford” plan to improve product attractiveness and efficiency of the company. No doubt that under this policy, the synergies would have been much higher. The separation happened without big difficulty as the integration had remained low and was mainly made of punctual projects. The main difficulty for Mazda was to go through the period of expensive yen as more than 80% of its production was Japan made. Yen has weakened again and with the support Sumitomo, Mazda is starting production in China and Mexico to supply the 2 most important markets in the world. Still, the long-term sustainability of a car manufacturer producing less than 2 million cars a year is a question. The most tangible remaining benefit of Ford management is what Mazda has learned in marketing. In the late 90’s, Under the management of its American CEO’s including Mark Fields, Mazda cleaned up its line-up getting rid of its commercial vehicles and sub-brand and clarified its brand promise around the idea of offering “stylish, spirited and insightful” products and adopted the “zoom-zoom!” tagline. Almost 20 years later, Mazda products are among the most attractive of the production and always remained true to this brand philosophy.
Daimler-Mitsubishi: if Ford managed Mazda and the potential synergies in a loose and “friendly” way, Daimler’s method to manage its Japanese partner was a completely different story. Overnight, Daimler-Chrysler sent 70 executives to Mitsubishi Motors and basically “doubled” all positions. The underlying idea of Jürgend Schrempp was to integrate as quickly as possible the Japanese branch of “Welt AG” in the DCX system. Rolf Eckrodt, a veteran of Daimler who had spent the last 6 years managing the train company ADTranz, a joint venture between ABB and Daimler. Eventually, ADTranz was sold to the Canadian Bombardier and after the sale Daimler had to reimburse a significant amount of money to Bombardier for accounting issues. Without underestimating the qualities of Rolf Eckrodt, his track record was very different of Carlos Ghosn who successfully managed the integration of Uniroyal in Michelin and the cost reduction of Renault. Very quickly, Daimler started to force synergies into the DCx structure. For example, the HR system had to cope almost overnight to Daimler system. The Mitsubishi plant had to adopt the quality management processes of Daimler. But the HR or quality management systems in Japan are totally different of what they can be in the west. Particularly, the level of control is much higher than in Japan where the philosophy is to do the job right at the first time. Erin Meyer, professor at INSEAD and specialist of inter-cultural management explains in her book “the culture map” how Japanese and German can be different on many points. For example, when Germans are low context and like being explicit and give direct feedback, Japanese are rather in a high context environment where direct feedback is avoided. With such differences it is hard to imagine having the same HR policy overnight. Likewise, Germans are relatively quick at going to confrontations when Japanese avoid all forms of confrontations. With a dual management and such big cultural differences, it became clear that none of the Japanese executives felt accountable or responsible for what was happening. Most decisions were made in Stuttgart based on what was understood and reported by the Daimler expatriates executives. Contrary to Renault and to some extent Ford who always tried to respect the preexisting culture and logic of action, Daimler was hoping to force the synergies. I remember having interviewed some candidates coming from Mitsubishi when I was at Nissan and what I heard was always the same. People were demotivated and even discouraged. The result was that year after year, none of the objectives were attained. In 2002, Mitsubishi North America reached its sales targets through a “0-0-0” financing program under which a buyer could acquire a car with 0 down payment, 0 interests and deferred payments for 12 months. Mitsubishi image had already suffered of quality issues that were covered up 5 years earlier. As a result, high-risk customers rushed to benefit from the “0-0-0” program and in 2003 Mitsubishi had to pass a provision of almost half a billion $ for exceptional losses as many customers never paid anything and the residual value of the cars was extremely low. In short, the recovery of Mitsubishi was not underway. Eventually Daimler sold its stakes after having recorder losses of 800 millions $. In less than 5 years, after ADTranz, Rolf Eckrodt had sold two stakes in 2 companies for hundreds of millions less than what Daimler had paid for a few years before. In 2007, Daimler-Chrysler eventually split or the “merger of equals” ended up by the sale of Chrysler to Cerberus that later discovered that under Daimler’s management most of the know-how of Chrysler, its ability to make attractive and innovative products or to manage good relations with suppliers had disappeared. Eventually, Chrysler was taken over for one dollar by FIAT.
No doubt that as in the case of Renault with Volvo in 1992, Daimler learnt from its failures. What makes sense on the paper rarely does in reality for who ignores cultural differences. Those differences can be national but also linked to each company past and history. We saw that even for a Japanese national it was difficult to join a new company when the culture and common past are strong. But above all, paper synergies ignore human nature.
Mitsubishi Motors ended in very tough situation. Eventually, its eponym companies, Mitsubishi bank, Mitsubishi Corporation and Mitsubishi Heavy saved Mitsubishi Motors. Contrary to Mazda that had learned from Ford importance of having a customer and marketing driven strategy, Mitsubishi, like Chrysler, had lost a lot of know-how compared to the pre-alliance period. After having closed its European plant, NEDCAR in the Netherlands, it announced a session or closure of its American plant in Illinois. Its presence in Europe and the US had become marginal, as it had always been in China. Even in Japan, Mitsubishi sells fewer cars than Volkswagen. Japanese customers put a very high importance on trust and in the past this trust had been fouled. And, only its SUV’s and in particular the Outlander plug-in Hybrid can really make a difference on the market. I remember the time when it was the first company to innovate with impressive technologies in the 1990’s. It had been the first to launch navigation, intelligent cruise control with radar measuring the distance with preceding car, the first to equip its petrol engines with direct injection or leader in automatic gearboxes… It was a leader in SUV, having won many years in a row the Paris Dakar rallye, and names like Lancer Evolution made all fans of sports cars dream. It is sad to see it struggling and only temporally surviving by shrinking in size, cutting costs and benefiting from a weak yen. Eventually after an additional scandal in the area of biased fuel efficiency homologation, It was in turn rescued by Nissan in 2016 for more than a symbolic dollar but only 2.3 billion dollars.
In short, 3 apparently similar alliances, with same perspectives of synergies and mutual benefits during planning phases ended up completely differently.
Ford-Mazda was a good example of freedom without any frame, benefits were limited and divorce was very easy to implement. Daimler-Mitsubishi was the example of no freedom at all and resulted in a disaster from which Mitsubishi could not recover alone. Only Renault-Nissan, with its unique structure made of trust, mutual respect and strategy proposed by CCT and approved at top level proved successful and durable. Renault Nissan posted for the year 2014 3.8 billions benefits in growth opportunities, cost reduction and cost avoidance. And the exchange of best practice and the advantage of being managed by diverse teams need to be added to this number.
Another impressive and highly effective explanation of the success of the turnaround of Nissan was its planning process. Contrary to many companies, the planning process of Nissan was not to establish centrally a rigid set of rules and objectives but to identify the areas, which could have the greatest influence on the company’s future.
The art of planning at Nissan: the importance of the preparation was what struck me the most. Abraham Lincoln said: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” Carlos Ghosn put a lot of emphasis on the importance of strategy or as we explained earlier the selection of what the priorities of the following period should be. Each plan had a name and was communicated widely inside and outside the companies,
The plan was made of areas of priority, a limited number of areas of progress, quantified commitments and a set of transparent individual contributions to the plan. The first plan was NRP (Nissan Revival Plan) under which Nissan had to leave the “emergency room” as Carlos Ghosn used to describe it. Carlos Ghosn and the executive committee of Nissan committed to resign collectively if one of the following objectives would not be achieved. Those commitments had to do with the return to profitability and reduction the debt by half. They were achieved a year in advance. It was then followed by Nissan 180, the meaning of which was that Nissan would increase its sales by one million vehicles, achieve an operating profit of 8% of the turnover and reduce its debt to 0.
The plans were not an exercise in a closed room. It was a 2-year process that basically started by the interview of hundreds of people to identify what the idea of breakthrough could be. Then executive committee would select a certain number of potential topics. Those topics were very diverse but should have the potential to make the difference. It could be from taking the leadership in a segment to expansion in a region or gaining expertise in an area that could make a tangible difference such as brand or sourcing for example. In all cases, the top management would appoint a team to make a concrete proposal. The topic would be shortlisted only if the quantified improvement was big enough. If not the topic would be eliminated. After a series of forth and back top-down and bottom up and challenges from executive committee to make sure that the objectives were realistic, ambitious and had enough impact on the company bottom line. This selection would take a year. The second year was about aligning all sectors and regions of the company around the company objectives. Each area should define its own objectives and sub-targets to contribute to the success of the plan. Eventually, they would add-up transparently and the plan could start. It was a long process that allowed concentrating on the gaps during its execution, as what had been committed would be taken for granted. Only in case of an unforeseen problem would the basis of the business discussed again. The advantages of having such a long process were three: first there was enough time for testing different scenarios, second, the exercise been cross-functional there was alignment between individual and collective targets and third, there was no loss of time at he beginning of the plan. The company benefited from a flying start and avoided useless decision or decision taken in urgency.
As we see, the contribution of the teams to the strategy was essential. Once the plan had been decided and during its implementation, the top management gave all freedom to the teams as long as transparency and achievement was ensured. It could therefor focus on gaps.
Through a combination of push from top management to challenge the teams and bottom up strategy construction, Renault-Nissan has built a unique model organization. I learned a lot from it and decided I wanted to implement it further.
“Freedom within a frame” together with hybridization of logics of actions has shown its superiority over other forms of alliance.
This was the first inspiration of the “Third Road” of management.
Picture source:Renault Nissan Alliance