Leading the best auto alliance

Carlos Ghosn is a multi-cultural, multi-lingual industrialist-- at Michelin tyres in France and the USA; at Renault in France; at Nissan in Japan; and now at Renault again. But is he exceptional enough to be able to cope with today's inauspicious times?

How does a manager define career achievement? Well, many are the ways. The one might prioritise revenue growth, another the capture of new customers or new markets. Yet others may focus on profitability, for example restoring a loss-making division to profit via a well-managed turnaround. Carlos Ghosn (rhymes with cone) is firmly established in the last of these slots, his prime achievement having been his remarkable turnaround of Nissan, the Japanese carmaker.

The story of the turnaround strikes one like a before & after makeover – you know, like the frog turning into a prince. When Ghosn arrived in Japan to help Nissan, the company was a shambles: 1999 net losses of Yen 684 billion, a lean ten years without profits, a workforce with low morale, and net automotive debt of Yen 1,349 billion. In 2005, when Ghosn returned to Renault in France, Nissan’s bad old record was covered by a new good one, like a palimpsest covered by a Titian. Revenues had virtually doubled to Yen 10,824 billion, operating profits were Yen 791 billion, plus a fresh vehicle palette with top-quality marks.

This piece of industrial alchemy was compounded by a man (see box for biographical details) of equally compounded background. Ghosn has Lebanese roots, but was brought up multi-culturally and multi-lingually studying and working on three continents. It is therefore not surprising that he developed an unusual leadership style.

What can one learn from this chameleon of globalisation? Case studies, business magazine articles, even a biography in Japanese-comics manga form, along with video interviews, seem to indicate that the answer must be, a great deal.  “There were even requests for Ghosn to become CEO of General Motors, or prime minister in Japan in the early 2000s,” reports an authority, “at a time when Japanese political capital was scarce.” The authority is professor Guy Fournier, of a leading German business school, Pforzheim University of Applied Sciences, near Stuttgart, the home to Mercedes and Porsche. Fournier has been studying Ghosn for the past five years.

The first lesson from Ghosn’s management book is to get along well with your boss. During his early years at Michelin, the French tyre manufacturer, he developed a strong tie with Francois Edouard Michelin, the grandson of the founder. He fared so well that he had to leave the company, knowing that the very top slots were reserved for family members. The company he then joined, was Renault, France's largest auto maker.

At Renault, Ghosn quickly developed a strong rapport with Louis Schweitzer, the CEO. The men grew to respect one another. After cutting Ghosn’s teeth on some ‘simple’ problems at Renault and seeing them solved satisfactorily, Schweitzer was persuaded that the Nissan opportunity fit Ghosn’s capabilities like a glove. This was also the period of Ghosn’s first turnaround, when he successfully – albeit painfully – trimmed unprofitable Renault activities, namely at the Belgian Vilvoorde plant. These efforts boosted Renault’s cash flows, which in turn allowed the company to acquire the Nissan shares down the road.

Leadership Traits-Diversity
What particularly strikes Professor Fournier, at least according to a paper he wrote with another professor, David Evans, of the Reims Management School in France, is that Ghosn  “... is a strong believer in cross-company diversity, with teams from Nissan and Renault working together on projects in both Japan and France.” The two professors then go on to report that, “... Ghosn also introduced cross-functional diversity, for example with marketing staff acting on projects jointly with manufacturing engineers, or dealerships.” For Professor Evans, who teaches international management at Reims, the diversity goes beyond that which is nowadays called cross-culturalism: “Ghosn is convinced that mixing up the pot will help create value that otherwise would not have been seen or found.”

Professor Fournier calls this procedure cross-pollination: “For Ghosn, diversity must extend beyond the social or the national, as well as beyond race or gender, and also address   functional areas. He believes that, by creating diverse teams, better power trains as well as better dealership relations can be created. Mind you, these teams are no mere social experiment. They are given specific goals to be attained and have their performance evaluated on this basis. Ghosn feels that this is the way to operate, and expand, globally.”

Vision
“I attribute a great part of Renault’s success with Nissan because to the fact that it has given it the form of a strategic alliance, and not just another merger – a merger, say, of the doomed Daimler-Chrysler variety,” explains Professor Evans. “Renault, and Ghosn in particular, had the vision to let Nissan maintain its culture without imposing heavy-handed French management. Instead, both companies worked in tandem, coming to a problem from their own experiences but then amalgamating to come up with a solution.”

This approach harvested cost-efficient synergy. Renault and Nissan are planning to reduce the total of platforms for the cars to ten by 2010 from three times that number when the plan was first launched. The companies also operate a joint purchasing operation, which continues to yield substantial annual savings in supplier costs.

Let’s turn to Guy Fournier for the details: “I remember how Renault managers approached Nissan’s headlight supplier,” he reports, “a company that had developed a sophisticated yet expensive new technology. The managers were impressed but said they needed that quality, but at 15% lower cost. As you can imagine, the supplier demurred, Such a drop is impossible, the headlight people said. Nonsense, retorted the French, while suggesting ‘Let us do the maths together.’ The maths consisted of cutting corners without affecting what was superior about the new headlights. In the end Ghosn got the headlights at 15% off, because his culturally-attuned team had managed to creatively circumvent any feelings of damaged pride.”

Transparency
As we have just seen, the Ghosn way is not without stratagems. Yet Fournier insists that, “with Carlos Ghosn, what you see is what you get. Take his performance at the Tokyo Auto Show in 2000, right after he had taken over at Nissan. In a press conference there he outlined his plan and his concrete targets for the turnaround. This is what I will do, he said, and if we do not achieve these results, my executive committee and myself will resign. That is what one calls putting one’s money where one’s mouth is.”

“One of the striking characteristics of Carlos Ghosn, often remarked on by his colleagues, is his ability to synthesise the elements of a complex problem and propose seemingly simple solutions,” explains David Evans. “These analytical abilities are so strong that Ghosn’s colleagues often leave a meeting thinking: ‘Why didn’t I think of that myself?’ ”. One answer to that is that Ghosn is expert in several fields.  Having the ability to synthesise and analyse is not given to everybody.

Part of solving a problem is to understand it, and in many cases this requires the readiness to pay close attention to opinion and counsel.  “I estimate that a good manager should spend 90% of his time listening and only 10% speaking,” says Ghosn. Within Nissan, one of the key success factors was the cross-functional and cross-border teams, and their interaction with local managers. For this effort to be effective, there were countless large meetings involving many managers, and for these to be productive, it required the leadership of a sharp analytical mind to keep discussions on track and objectives targeted.

To bolster his analytical insight, Ghosn relies on his strong work ethic. Known as 7-11 for his long work hours, Ghosn devotes five days each week to pistons and clutches. The remaining two days are given to his family, spending time with his wife and four children. “My kids are very important to my balance,” he explained in an interview, “since they keep me informed of what is happening out there in the world beyond my office walls. Reading books is another important source of mental nourishment.”

Charisma
To elicit the devotion from his managers, Ghosn can rely on a goodly supply of charisma. He does preserve the French formality of addressing colleagues as ‘vous’ – as opposed to a more familiar ‘tu’ that is the standard on the assembly line – yet his work style retains the American openness that came from his years in the United States for Michelin tyres, when it acquired Bridgestone. That openness is accompanied by the strict fairness that he displayed in Japan, when he only brought with him a small team of French managers. He sensed – correctly, it seems—that it would be counter-productive to appear on the Japanese scene with the intention of dominating.

“Ghosn is also very open, you could even say democratic,” says Fournier. “He will go out on to the factory floor or into the computer-laden purlieus of the engineering and design departments, and talk shop with blue collar and white collar workers alike. Contrast that with the old school French carmakers where CEOs would only discuss things with their direct reports.”

Ghosn styling
In all these ways Ghosn has proposed a style, meaning for it to percolate down as an inspiring message to staff and workers. There’s the 7-11 work schedule. The down-to-earth engineer’s approach. The chummy lunches at the Nissan cafeteria and choice of a Nissan as his private car. There's also one of his sayings that’s been quoted often enough to now qualify as a motto:  “The key to success in any career is understanding and choosing what you love to do. The rest flows from there.”

For Ghosn, the next leadership frontier seems to lie in areas beyond the micro-economic interests of his two car companies. Indeed, at times he seems to be morphing into a green politician. But that's only at times.