Five imperative guidelines of Carlos Ghosn

1. Clear vision
This will guide the operation of the business, provide
priorities.
All members of the organization must understand it.

2. Targets and Commitments

They must be spelled out in a clear articulated plan.
Accountability for each manager and group must also be
clear.
Always measure performance, prioritize correctly.
Recognize results, reward good performance.
3. Transparency
Management must be open to develop trust and
confidence of the organization.
Results are shared openly.
Respond promptly to customer inquiries and
requirements.
Provide high level of service quality, know customer
wants and needs, always customer satisfaction.
4. Meaningful Marketing
Develop attractive products.
Marketing emphasizes benefits of products.
5. Performance Oriented Management

 Managers are expected to be proactive, move earlier

and better than competition.

An outsider takes on Japan

Just a year after its biggest loss ever, Nissan Motors reported the
largest net profit in its history. Read our interview with the man who
led Nissans spectacular 19-month turnaround, Carlos Ghosn.
Allan R. Gold, Masao Hirano, and Yoshinori Yokoyama
The McKinsey Quarterly, 2001 Number 1
In May 2001, just 12 months after reporting its biggest loss ever, the Nissan
Motor Company reported the largest net profit in its history. This turnaround,
announced by Nissans president and chief operating officer, Carlos Ghosn,
made good one of the boldest promises ever pledged by a corporate executive.
Mr. Ghosn had said he would resign if the automaker did not report an
operating profit in the fiscal year ending March 31, 2001. Mr. Ghosn made this
dramatic pledge shortly after Renault announced that it had chosen him to run
the company, in June 1999. The French automaker had purchased a controlling
36.8 percent interest in Nissan that March.
Mr. Ghosns change-management challenge at Nissanand the approach he
took to the companys 19-month turnaroundis of great interest to top
managers and academics alike. The former Michelin and Renault executive,
best known for his cost-cutting skills, was trying to do more than restructure a
respected but money-losing industrial giant. He was doing so in Japan, where
social convention limits ones flexibility in making big, fast cost reductions.
Moreover, he is a foreigner, one of the few to lead a Japanese company.

In these excerpts from an interviewconducted by Allan Gold, Masao Hirano,

and Yoshinori Yokoyama, and published in early 2001Mr. Ghosn offers his
perspective on the turnaround effort he was in the process of leading at
Nissan.
Interviewer: How do you describe the Nissan revival plan?
Carlos Ghosn: The plan is still, unfortunately, known for its
immediately dramatic part. How do you make head count reductions in
Japan? How do you reduce manufacturing overcapacity in Japan? How
are you going to get rid of the seniority system in Japan? How do you
establish performance-based management? So attention was focused
on cost reduction, sales of assets, and how we are going to eliminate
the keiretsu1 and develop other kinds of suppliers.

In fact, the Nissan revival plan is more a growth plan. Not only the
good part but the part of growth that is a little bit more painful:
shifting resources from where they are not effective today to where
theyre going to be much more effective.
Interviewer: How did you make the decision to cut back drastically on suppliers
and to close factories, given the historical constraints on taking these kinds of
harsh steps in Japan?
Carlos Ghosn: First thing, there is no doubt that we had a "burning
platform"declining market share, 2.4 trillion [$22.3 billion] in debt,
a lack of profits. When you look at the last ten years, you have seven
out of the last eight without profit.
I discovered very quickly that this sense of decline was widely known
inside the company and shared. I can tell you that from the inside, the
burning platform was even more visible. Managers knew how much
they were restricted in their budgets, how many resources they
needed that were not given to them, and how much they had to accept
short-term-oriented decisions that hurt the company long term, in
terms of delayed development of certain products. For example, the
Micra, which will be replaced at the beginning of 2002, will have been
on the market ten years. No car company today maintains its product
in such a competitive segment for such a long time.
We said that we were going to build the revival plan together. So we
started by establishing nine cross- functional teams one week after I
took my job in July [1999]. Today there are ten. The object of each
cross-functional team was to bring people from various seniority levels
around the table to discuss all the problems and opportunities existing
for one particular area of the company: business development,
purchasing, manufacturing, research and development, general and
administrative, marketing and sales, phasing out products and
complexity, financial costs, management systems. I told the executive
committee that we needed cross-functional teams because we wanted
to make sure that this [revival plan] was the work of the company [as
a whole], not only top management. So thats why in the crossfunctional teams we didnt have only executive vice presidents and
senior vice presidents.
We said to the teams, "Tell me what you think Nissan should do to get
the maximum out of this area." There was continuous discussion, and
we made all the decisions in one week, at the end of September, and
ended up with the Nissan revival plan on October 18, 1999.

Interviewer: Did you know at the beginning that the people on the crossfunctional teams would conclude that Nissan had to reduce its supplier network
and close factories?
Carlos Ghosn: It was so obvious from the beginning. The only question
was by how much and how fast. But I dont want you to think that the
cross-functional teams were created only to [help people] buy into the
plan and that the plan was ready before then. Its not true. We built it
together.
The cross-functional teams were challenging a lot of traditions. But
how do you challenge a keiretsu that you have been doing business
with for many years and that you are heavily involved with? How do
you do it from one day to the next? Its very difficult.
So, in a certain way, an outsider could do it. Im not saying a foreigner.
Im saying an outsider could do it because the outsider is free of all
these ties. The outsider is not compromised by all the promises and
the deals that took place [earlier]. An outsider can come in and say [to

suppliers], "Performance is not enough. Im sorry, guys. Nissan is not

doing enough, but you are not doing enough, either. Were going to fix
our problem. But well ask you to fix your product, and here is a
guideline for the next few years."
Interviewer: How have you managed to reduce the number of jobs at
Nissan, given the Japanese tradition of avoiding straight layoffs?
Carlos Ghosn: In Japan, head count reductions are taking place, and
were not planning to change that. The reductions are [coming]
through retirement and preretirement [offers].
There is also relocation. For example, were closing the Murayama
plant. We said to every single blue-collar worker who would like to be
relocated in another Nissan plant, we will offer him a job. It happened
that 80 percent of the people accepted a new job in another plant. So
theres 20 percent that were helping to find a job [with another
company]. Were helping them to reintegrate because they want to
stay in Murayama.
Outright sackings of [Nissan] employees in Japan are not taking place.
Its not taking place, because I dont think I need to do this. We can
revive Nissan without that.
Interviewer: You have noted that you received considerable outside advice.
What kind?
Carlos Ghosn: Ive had a lot of opinions from people who are ex
Nissan executives, exNissan board members, dealers, suppliers. Even
people from outside who one way or the other are opinion leaders who
came to me and wanted to discuss or make a particular suggestion
whats feasible in Japan, whats not feasible. I must admit that a lot of
people cautioned me about being prudent. "Youre not in the United
States, youre not in Europe. Youre in Japan. Its a little bit difficult, so
its going to take five years or ten years or whatever."
There was a disconnect between what I was hearing and doing inside
the company and what I was hearing outside the company. But I had
to make a decision, and a decision has to come from strong inner
beliefs. And my strong inner belief was that it was time to totally
break with the past ten years of Nissan.
At the end, I made a decision to commit my own job if any one of the
objectives was not met. It was very important for the credibility of the
plan, both internally and externally, to make this kind of commitment
so people knew that you are going to be 100 percent behind the
Nissan revival plan. The ultimate sacrifice for the top manager is to
say, "Im putting my job on the line if I dont achieve these targets."
You cant ask a manager for more than this, especially in my position,

because I had nothing to do with this [companys problems]. I was not

in any way responsible for the situation. On top of this, I was saying,
"I bet my job on this." So it has a high level of credibility. In a certain
way, this limitednot eliminatedthe anxiety and the skepticism
about the question, "Are they really going to do this?"
We had to act fast. And we had to mobilize and make strict, immediate
targets so that there was no room for people to say, "Well, lets wait
and see."

Interviewer: What kind of targets did you set?

Carlos Ghosn: Lets use purchasing as an example. Purchasing is very
important for car manufacturers because its between one-half and
two-thirds of their costs. If you dont have an effective purchasing
system, there is no way you can be a competitive car manufacturer.
When we started the discussion in purchasing, the first crossfunctional-team proposals were more into the one-digit, three-year
effort than into the two-digit effort. So we said, one digit is a more

conservative objective and does not take into consideration a lot of

areas [for change] that we were discovering, like rationalizing the way
we purchase services or equipment. People usually think about
purchasing as parts, but it is much more than this. Little by little, in
the meetings we moved from a one-digit objective to a two-digit
objective for three years. And we ended with a commitment of 20
percent [for purchasing cost reductions]. But the target is higher than
20 percent. For the year 2000, we called for an 8 percent purchasing
cost reduction. Today we are envisioning more than 8 percent.

Interviewer: When you arrived, did the company have any targets?
Carlos Ghosn: There were some. What I can tell you is that there were
no global ones. Japan had its own targets, the United States its own
targets, and Europe had its own targets. They didnt even know each
others targets. Each one was left to its best efforts. Service was not
considered at all. Equipment was not considered at all. They [the
targets] were fragmented, partial, conservative, and did not add up to
any long-term vision.

So you are in a vicious circle where the supplier has every interest in
giving you the minimum
The suppliers complained a lot that Nissan people were coming many
times during the same year and asking for more [reductions]. Say
youre a supplier of Nissan. You have the purchasing guy from Nissan
coming to you and telling you for next year that we want a 4 percent
price reduction. And the supplier challenges you a little bit and then
you have to end up at 3.5 or 3.6 [percent]. So you start the year like
this. But the supplier knew that the Nissan guy would be back in three
months. Why? Because the situation of the company would be worse
then, and he would come back and ask for half a percent more or 1
percent more. So you are in a very vicious circle where the supplier
has every interest in giving you the minimum, knowing that you will be
coming back. And then when you come back, he will give you another
slice. This is the way you end up having costs in your supply chain that
are 20, 25, or 30 percent higher than your competitors.
One of the most important objectives for us was to make sure that the
suppliers would believe us when I told them it [the objective] was 20
percent, [including] 8 percent the first year. We will not come back to
change this objective, whatever the situation.
Interviewer: What attitude did you find at Nissan upon arriving?
Carlos Ghosn: This is something that is common; this is the biggest
sign that a company is in trouble. Not just in Japan but everywhere.
The biggest sign is when everybody tells you he is achieving his
objective. Yet the company is in bad shape. Why? Because when you
are in a situation where everybody feels good about what he is doing
personallyor his section or his department or his countryall the
problems are due to the neighbor or the colleague or somebody else
who is blind about how much [trouble] he is creating. And the
company suffers. This was exactly the situation of Nissan. Nobody felt
really responsible for the situation of the company, and thats why
there was no sense of urgency.
Interviewer: This question of responsibility leads to the next question. Have
you made any changes in Nissans performance evaluation procedures?
Carlos Ghosn: We have. But you cannot start with performance-based
management at the base. You start at the top and cascade down.
You cant start with performance-based management at the base; you
start at the top and cascade
First, we established a team that we call the nomination advisory
committee, over which I preside. No promotion in top managementin
Japan or outside Japanis approved without a review of the
[candidates] specific contribution to the performance of the company.

If, at the nomination advisory committee, somebody comes and says,

"This is a great guy, we had a great time with him," Ill say, "What is
his specific contribution to growth, profits, or cost reduction?" I can
tell you that weve eliminated a lot of people from promotions. For us,
the main question about high potential is not only how brilliant the
guy is but what are the breakthroughs or the specific contributions
that he has concretely achieved in the last two to three years.
The second thing is compensation. There is a bonus system that is
strictly linked to the operating profit of the company or of the
subsidiary and to one or two critical objectivescritical objectives
being growth and profits.
Third, stock options. Stock options are still very complicated in Japan.
So we have to go for what we call warrant bonds. The board of
directors voted for 15 million warrant bonds, allowing more than 500
executivesnot only in Japan but in North America and Europe also
to benefit from them as an incentive, not a reward. The basic condition
is the operating profit of the global company. If the operating-profit
[target] of the global company is not reached, nobody gets anything.
There is a lot of money on the table for upper management, especially
when you are starting with a company in which shares are depressed.
Interviewer: To what extent do you think that your new system will help attract
and retain top talent?
Carlos Ghosn: This is always a concern for any person who is in charge
of a company or part of a company. Obviously, some talent prefers
working for a peaceful, growing company with no problems. But a lot
of talent likes challenges, to prove yourself in a not-so-easy situation.
For example, we said that on top of the reliability of our cars and the
quality of our cars, we are going to improve design. Attractive design
is one of the dimensions missing in Nissan today. To date, we have had
no problem hiring designers. We have people coming from all parts of
the worldItalian, French, Japanese, and American. They want to
come to Nissan because they know that there is a challenge here. They
know that here they can make a real difference.
Compensation obviously is an important element. The fact that we are
one of the most aggressive Japanese companies in terms of bonuses
and stock optionseven if this is recentis something of value for a
lot of people. Especially when this system is more and more known
and understood in Japan.
This is the attractive side. Now we have the negative side. Some
people ask, "Do I have a future in this company? Is Nissan going to

really make it?" Others ask, "Is it going to be a Renault-dominated

company? That means no future for Japanese workers, because
everything is going to be taken by French people or foreign people or
American people, et cetera." We have spent a lot of time saying,
"Look, its really performance that counts." This company will remain
Japanese; the culture, the base, the engine are Japanese. We want to
keep the strengths of Japanese culture but to modify everything that
clearly presents us with an opportunity for progress by adopting best
practices worldwide. But its still a risk because some people dont
believe it.

Interviewer: What kind of effort have you been making in order to recruit
younger people to the company?
Carlos Ghosn: We are clearly saying that we are challenging the
seniority system. Today the system in Japan is, if you dont have a
certain age, if you dont have a certain experience, you cant aspire to
have certain jobs. And [at Nissan] we say, no [longer]. If younger
people or less experienced people have a clearly bigger potential, they
will get the job. This is not creating, obviously, enthusiasm
everywhere in the company. But it is creating enthusiasm among the
younger people.
Interviewer: You have begun to reorganize the management of Nissan. What
are the changes that you might describe as innovative, at least for Nissan?
Carlos Ghosn: We have announced a Japan management committee. In
the Japan region, nobody knew who was really in charge. Is it the
executive committee of the company? Is it the sales organization? You

ended up with a situation where, in fact, nobody was really

responsible for the decline of Nissan in the Japanese market.
We will have less than 200 people at the world headquarters in Tokyo.
Some headquarters people will not be based in Japan. Part of the
headquarters will be in the United States or Europe. You wont have
people who will be here [at headquarters] for life. No. People will go in
and out of headquarters based on what they do. We have some core
people who are part of headquarters. Obviously, the CEO has to be
part of it, and the head of human resources globally has to be part of
it. But, for example, some people are in charge of a project, and as
long as the project continues they are part of headquarters. The day
the project is finished, they are out of headquarters.
Then we have experts. There are certain areas where we need to
evaluate people and to identify them as experts in a particular
technology or in a particular process that is important. They can be in
the United States, they can be in England, they can be in Thailandits
not important.
We eliminated the position of president in North America and Europe.
Instead, our executive vice president travels every month to head the
management committee of North America. And I travel every three
months to head the management committee of North America. Each
time you have a regional president, you start to have problems of
communication and retention of information, either from headquarters
to the region or from the region to headquarters. We dont want that.
This is a killer for the global performance of the company.

Interviewer: What do you consider the biggest difficulty that youve faced in
your job to date?
Carlos Ghosn: The biggest difficulty for me by far is not mastering
Japanese. You are facing a very important period of change, so
obviously communication is extremely importantcommunication at
all levels of the company, from executive committees to the workforce.
I can manage [to make myself understood] in low-level Japanese,
ordering a meal in a restaurant or going to a store to buy something.
But I cannot sustain a business discussion in Japanese. And whatever
the quality of the interpreter you have, you will never know the
subtleties that people would like to communicate to you. And youll
never know how you are being translated.
(Japanese people want and need to spend a lot of time on a concept
at the beginning)

Interviewer: What lessons have you learned on the job?

Carlos Ghosn: You have to make sure that you understand the cultural
differences between Japan and all the cultures that Ive been part of,
whether its French or American or Brazilian or Eastern. Even though
you know that, you can always fall into traps. At the beginning of the
year in Japan, there are a lot of parties where people greet each other
suppliers and dealers, for example. It happened that we had the
supplier New Year party at the beginning of January. And I was
supposed to be in Brazil at the same time. I spoke to our people and
asked if it was a problem if I didnt go to the supplier party. They said,
"Obviously, they would love to have you there, but if you have a
fundamental reason, they will understand."
In an American environment or in a Brazilian or French environment, if
you are absent and you have an excuse, its not a problem. But in
Japan, you have to come. So this is something I learned: there are
certain formal meetings or events that you cannot miss. You have to
find the right balance, obviously. Even though you know the rules at
the beginning, its not the same thing when you go through it [in real
life].
For example, you know that the Japanese approach is very different
from the French approach or the American approach. Japanese people
want and need to spend a lot of time on a concept at the beginning.
They need to understand the concept. What do you want to do? Why
do you want to do it? How do you want to do it? It takes much, much
more time. [But] when they [the Japanese] understand and they buy
in, they execute. And you dont have to spend a lot of time checking
afterwardthe results will be here. The Nissan revival plan is going to
be an excellent example of this.
In a Latin American country or even an Anglo-Saxon country, its
different to a certain degree. People are very quick at the beginning.
"We understand. We understand. You dont have to continue. We
understand." So the concept part and the decision part are very fast.
The problem is that when they [Westerners] execute, youre going to
have to intervene many times to make sure that everybody is moving
in the direction that you want the company to move in.
In Japan, I also discovered, if people dont act, it doesnt mean that
they dont agree with you. It means they dont understand, which is
totally different. This is the kind of thing that you learnnot in the
books, but in your day-to-day practice. In this case, its Japan, but it
could be in another country.
About the Authors

Allan Gold is a member of The McKinsey Quarterlys board of editors, and

Masao Hirano and Yoshinori Yokoyama are directors in McKinseys Tokyo
office.
Notes
Keiretsu means corporate groupings characterized by cross-shareholdings,
close and long-term business relationships, and strong ties among
managements.
1