nissan revival plan 1999-2002: why, how and so what?

NISSAN REVIVAL PLAN 1999-2002: Why, How and So What?F.Ramiandrasoa GM DG 91 - Paris, 19 Jan. 2006

Groupement Automobile

F.Ramiandrasoa Paris, 19 Jan. 2006 UTC Auto 19JAN06.ppt | 2

Nissan before 1999…


…Nissan today…


…Nissan tomorrow?


From falling to flying profitability


From eroding to growing market share


From deteriorating to improving liquidity


The industry The economy

The firm

Firm’sdecline

New distribution channelsNew technologies

New competitors

New value chainsSuperior

offers

Weak yen

Weak Japan Inc.

Organizational inertia

Extensive financial assets to write off

Inferior skills/distribution network Ineffective

management culture

Many root causes…


…but only 3 winning plans


• What makes the Strategic

Alliance critical for Renault &

Nissan?

• What makes Nissan Revival

Plan so effective?

• What should Nissan do to

sustain profitable growth?

Strategic and operational advice to the turnaround leaders…

Key issues

• develop strategic and operational

guidelines for turnaround

managers

• provide lessons-learned about

success factors in the industry

• help managers review and shape

their current strategy and

operational plans

Nice take-aways


…and willing•Is available

Spot much lower than real option value

•Is affordable

Only under specific conditions?•Fits culturally

Economies of scale (R&D, distribution, supply chain…)

•Offers potential for synergies

New markets, superior technology•Offers potential for revenue

Huge debt, declining profitability•Offers solid businesses

CommentsCharacteristics of a good target

Key issue no.1: Renault & Nissan shouldembark on a Strategic Alliance because…


The Alliance: a recipe for success

•Sign-in cash

•Sound turnaround plan

•Skill in execution

•Mutual respect of cultural

diversity

•Cross-cultural leverage


StrategicOperationalDecisions

Growth, share, innovate, brands, effectiveness

Cut costs, investments, rationalize assets, efficiency

Emphasis

Long-termShort-termEffectsPeople & capabilitiesFinancial resourcesFocusComplex, slowSimple, quickDifficultyExternalInternalOrientationNumeratorDenominatorTask

•Large scope•Only about causes

•Limited scope•Mostly about symptoms

Diagnosis

PositiveNegativeMorale

After NRPBefore NRP

Key issue no.2: From Following to Leading the Change


9 Cross-Functional Teams (CFTs)

•Move to a globallyintegrated organization•Increase output efficiency by 20% per project

•Close 3 assemblyplants in Japan•Close 2 powertrainplants in Japan•Improve capacityutilization in Japan from53% in 99 to 82% in 02

•Cut number of suppliers by 50%•Reduce costs by 20% over 3 years

•Launch 22 new models by 2002•Introduce a minicar model by 2002 in Japan

Objectives Based on Review

•R&D capacity•Manufacturingefficiency & costeffectiveness

•Suppliers relationships•Product specifications& standards

•Profitable growth•New Products•BI•PD leadtime

Team reviewFocus

•Engineering•Purchasing•Design

•Manufacturing•Logistics•Product Planning•HR

•Purchasing•Engineering•Manufacturing•Finance

•Product Planning•Engineering•Manufacturing•S&M

Members

•GM Engineering•DGM Manufacturing•GM Purchasing•GM Product PlanningCFT Pilot

•EVP Purchasing•EVP Engineering

•EVP Manufacturing•EVP Product Planning

•EVP Purchasing•EVP Engineering

•EVP GOM S&M•EVP Product PlanningCFT Leaders

R&DMfg & LogisticsPurchasingBusiness DevelopmentCFT Names


9 Cross-Functional Teams (CFTs)

•Close 3 plants in Japanby 2002•Reduce 9 platforms in Japan by 2002•Reduce the variation of parts by 50%

•Manufacturing efficiencyand cost effectiveness

•Product Planning•S&M•Finance•Engineering•Purchasing•Manufacturing

•Manager Product Planning

•EVP Japan S&M•EVP Product Planning

Phaseout of products & Parts

Complexity

•Create a worldwidecorporate HQ•Create regional MC•Empwer PD•Implementperformance-orientedcompensation and bonus packages (incl. S/O)

•Organizational structure•Employee incentive and pay packages

•Product Planning•S&M•Finance•Engineering•Purchasing•Manufacturing

•Manager HR

•CFO•EVP Manufacturing

Organization

•Dispose of noncoreassets•Cut automotive debt in half to $M8.8 net•Reduce inventories

•Reduce G&A costs by 20%•Reduce global head count by 21,000

•Move to a single global advertising agency•Reduce marketing expenses by 20% in Japan•Close 10% of retail outletsin japan•Create local business centers

Objectives Based on Review

•Shareholding and othernon assets•Financial planning structure•Working capital

•Fixed overhead costs

•Advertising structure•Distribution structure•Dealer organization•Incentives

Team reviewFocus

•Finance•S&M

•S&M•Manufacturing•Finance•HR

•S&M•PurchasingMembers

•DGM Finance•Manager Finance•Manager GOM S&MCFT Pilot

•CFO•SVP Finance

•CFO•SVP Finance

•EVP GOM S&M•EVP Japan S&MCFT Leaders

Finance & CostG&AS&MCFT Names


Organization

Phaseout of Products & ComplexityManagement

Finance & Cost

General & Administrative

Sales & Marketing

R&D

Manufacturing & Logistics

Purchasing

Business Development

Long-TermShort-TermCFTImpact on performance

CFTs are built for leading consolidation and transformation in parallel…


NRP Items

Staff & skills

Political, legal & environmental changes

Demographic & economic changes

Suppliers

Technology

Industry & competitionMarket & customers

Areas

…but should also focuse on anticipatingthe evolutions of the industry


Renault, hybrid, fuel cell…Strategic alliances

High potential in environmental start-upsEquity stakes in emerging companies

High potential in leading innovators (Sony, Philips…)Licensing

Keiretsu…Partnership with customers & suppliers

High potential in research centers (zero emission…)Government research contracts

High potential in research centers (CPUs, PhDs…), global distributors (Wal-Mart, Carrefour…) , leadinginnovators (Sony, Philips…)

External experts

Strong reduction but one major hire: Chief Designer S.Nakamura

Hiring

CFT, GNX…Cross-deployment

Training & development

Project teams

CommentsNRPWorld-class paths

NRP is a good start to help Nissan buildthe most appropriate core competences…


LowDevelop local core strategies

Strong central role?Reduce HQ staff

LowSeparate businesses into SBUs

HighAnalyze portfolios: priorities & divestments

CommentsNRP

…but NRP provides limited directions to formulate world-class strategies


« I will resign if these commitments are not met »Ethical standards

« Seven Eleven »Stamina

Connects with gemba and publicNetworking skills

No more ambiguity with precise and quantifiable objectives

Decisive follow-up

« dead serious and sincere »Strong communications

Straightforward, direct, and simpleClear visionChange agent

« no sacred cow »Blank cheque

15-year experience as COO, CEO, President…AuthorityDecision-maker

C.GhosnCharacteristicsRoles

C.Ghosn: the right person at the right place and the right time…

…but who’s next?


Vox populi…

…but who’s next?


Key issue no. 3: so what’s next?

Focuse more on strategyformulation process than on strategy per se

Shift decision-making

power to SBUs

Shrink corporate staff

Generalize production system tools to increase overall flexibilityin responding to changes in the marketplace

Implement EVA process to relate budgeting process to value creation

Implement BalancedScorecard to relate economic profit targets and individual profit incentives

Control and sustainprofitable growth


Back-up Slides:•Automotive CFRIC vs. Change in Sales•CFRIC Calculation•Further Reading•CFT•Nissan Value-Up Program

Main sources:• HBS Case « Nissan Motor Co. Ltd – 2002 » no. 9-303-042• Robert M. Grant, Contemporary Strategy Analysis• Peter Doyle, Marketing Management & Strategy


ROCE

-0.7%

8.4%

ROS

-0.5%

6.3%

CapitalTurnover

1.4

1.3

COGS/Sales

74.8%

73.4%

Dep./Sales

-2.6%

3.5%

SG&A/Sales

2.4%

9.6%

PPETurnover

2.2

2.2

InventoryTurnover

1.7

1.4

CashTurnover

3.2

4.3

1999-2002: So much improvement in shareholders’ value

FY99FY02


ROCE

8.4%

8.4%

ROS

6.3%

6.3%

CapitalTurnover

1.6

1.3

COGS/Sales

68.4%

73.4%

Dep./Sales

2.6%

3.5%

SG&A/Sales

6.0%

9.6%

PPETurnover

5.3

2.2

InventoryTurnover

1.4

1.4

CashTurnover

7.1

4.3

2002: NRP’s objectives are met but there is still a long way to go to outperform the best-in-class… and surpass cost of capital!

Best-in-class

Nissan


C7

C6C5

C4C3

C2

C1

R8

R7

R6

R5

R4

R3

R2

R1

LOW HIGH

LOW

HIG

H WORLD-CLASSLEVEL

STRATEGIC IMPORTANCE

REL

ATI

VE S

TREN

GTH

Resources: R1=Financial, R2=Physical, R3=Technology, R4=Reputation, R5=Culture, R6=Skills & Know-How, R7=Communication &Collaboration, R8=Motivation – Capabilities: C1=Corporate, C2=MIS, C3=Innovation, C4=Manufacturing, C5=Marketing & Brand, C6=Sales & Distribution, C7=Supply Chain & Purchase

En route to become a world-class player

effect of NRP leveraged by the Strategic Alliance

BACK-UP

nissan revival plan 1999-2002: why, how and so what?

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