By Jeremy Cato
Detroit, Michigan – There is no such thing as a so-called “Japanese carmaker,” says Nissan Motor Company Chief Executive Officer Carlos Ghosn, who learned this lesson firsthand upon arriving in Japan in 1999 to steer what has become a legendary turnaround at Japan’s number-two automaker.
“Toyota, Honda and Nissan are very different enterprises, with three very different cultures,” Ghosn says. This worldly, culturally sensitive and multi-lingual Brazilian-born executive was raised in Beirut and received his university training in Paris. “Characterizing a company as ‘Japanese’ doesn’t really tell you anything about it.”
Sitting in a downtown Detroit restaurant, here in the capital of the North American car business, the energetic Ghosn is busy slaying stereotypes of the Japanese auto industry as he describes the experiences chronicled in his new book, Shift: Inside Nissan’s Historic Revival.
In Shift, Ghosn puts a very personal and insightful spin on his efforts to understand not just Nissan’s corporate culture, but also that of Nissan’s main Japanese rivals, Honda and Toyota, as he steered Nissan back to profitability.
Of course, Ghosn did not arrive in Tokyo without some knowledge of the Japanese auto business. Before taking up his Nissan post, he was a senior executive with Renault, which purchased a controlling interest in Nissan in 1999. Renault had recruited Ghosn from the French tire-maker Michelin. He had been running Michelin’s tire business in North America before being lured away to Paris, where he was tempted by the prospect of one day ascending to the top job at Renault.
While at Michelin, however, Ghosn had dealings with all the major Japanese car companies from the vantage point of a supplier. Those experiences taught him that while Nissan, Honda and Toyota were all quite different, they nevertheless shared certain common characteristics: “A taste for technology, a determination to refine and improve the industrial process and an insistence on quality,” as he says.
Carlos Ghosn, President and Chief Executive Officer, Nissan Motor Co., Ltd. Click image to enlarge
Beyond those characteristics, Ghosn says these three Japanese car companies and the other smaller players in the Japanese industry are quite different. “Honda is a very technologically oriented company,” he says, adding that based on his Michelin experience, he says that Honda relies on pragmatism, technical excellence and expertise in making product decisions.
Honda officials do not dispute Ghosn’s views, but they argue there is more to Japan’s third-largest car company than engineering expertise. Honda also prides itself on being a fast-moving and fiercely independent company, former Honda Canada president Shigeru Takagi told me in an interview before he took up a senior post with the company in Europe.
In a world dominated by automotive giants, Honda is less than half the size of Toyota Motor Company. That reality prompted Honda Motor president Takeo Fukui to suggest last year that the main challenge facing Honda is “survival”, as an independent company.
Honda officials today say the company’s strength can be found in a handful of core beliefs, including respect for and empowerment of the individual and the “three joys”: the joy of the customer buying a new vehicle, the joy of the dealer selling it and the joy Honda Motor gets in creating satisfied customers.
In a cynical world, these ideas may sound either remarkable or simply unbelievable, at least for those who have not dug into the history of this car company founded by Soichiro Honda. Honda was an engineer who was passionate about the Honda Philosophy, which many in the company refer to as “Honda DNA.” Above all, Honda wanted his products to have character.
“Engineering without personality doesn’t have much value,” he said. Interestingly, Soichiro Honda was 60 years old when Honda’s first car, the N360, went on sale in Japan in 1966. It wasn’t until 1972 that Honda began selling cars in North America, but today, Honda operates plants in both Canada and the United States and has major engineering centres in Ohio and Southern California.
Those who work there, as do those in Japan, generally know that Soichiro Honda wanted his employees to be immersed and involved in the company’s success. More than 50 years ago, Honda set in place certain key principles for employees.
Paramount among them is a fundamental belief in the human being, and it is reflected in a value of personal initiative, a respect for individual differences and the importance of trust that allows for superior teamwork and the sharing of knowledge within the company.
Ghosn says that Toyota, on the other hand, is a very different company. In his experience, he has found Toyota a formidable competitor, imperious and sure of itself. This isn’t surprising, given that Toyota is the world’s second-largest automobile company and is determined to challenge General Motors Corporation in terms of size before the decade is over.
Looking back on his Michelin experience, Ghosn says, “Dealing with Toyota meant dealing with people who were very aloof. They exuded a sense of power. They had a binary vision: on one side there was their system and on the other side was the rest of the world.”
Author and University of Michigan industrial engineering professor Jeffrey Liker suggests this is an apt description of how Toyota views itself. In his recent book The Toyota Way, Liker says the management systems, thinking and philosophy underpinning Toyota’s success shape the company’s corporate culture.
“The fundamental insight I have from my studies of Toyota is that its success derives from balancing the role of people in an organizational culture that expects and values their continuous improvements with a technical system focused on high value-added ‘flow,'” he writes in The Toyota Way.
He argues that even though Toyota has more than 240,000 employees worldwide, it is still, in many ways, a large family business in which the founding Toyoda family exercises a great deal of influence. Toyota founder Kiichiro Toyoda was the son of prominent inventor Sakichi Toyoda, whose Toyoda Automatic Loom Works first began experimenting with and refining the lean manufacturing processes known now as the Toyota Production System, or TPS. In his book Shift, Ghosn succinctly describes the TPS, developed by the engineer Taichi Ohno, as “a pragmatic approach founded on observations of an American supermarket. The goal of the TPS was the complete elimination of the wastage – of raw materials, time and space – that characterizes heavy industry. It was at Toyota that ‘lean production’ was born.”
The TPS has received a great deal of attention in various studies, including a well-received study a decade ago called The Machine That Changed the World. But not to be overlooked is the human element in Toyota’s success.
Kiichiro Toyoda, an engineer by training, founded the Toyota Automotive Company in the 1930s with seed money provided by Sakichi Toyoda. His ideas about “just-in-time” manufacturing were influenced by Ford Motor Company’s production practices in the 1930s and 1940s, but Kiichiro added a very personal spin: personal accountability. Kiichiro Toyoda famously resigned and personally shouldered the blame for failures during the post-WWII period, when the company suffered horrendous losses that triggered significant labour unrest and loss of face for the company.
“The philosophy of Toyota to this day is to think beyond individual concerns to the long-term good of the company, as well as to take responsibility for problems,” writes Liker. “Kiichiro Toyoda was leading by example in a way that is unfathomable to most of us. Toyoda family members grew up with similar philosophies.”
Through the decades, of course, Toyoda family members have led the company and also held senior positions. At present, Shuhei Toyoda, Tetsuro Toyoda and Akio Toyoda all have prominent management roles. Shuhei and Tetsuro are the sons of Eiji Toyoda, a former Toyota chairman, and Akio is the son of former chairman Shoichiro Toyoda and a grandson of company founder Kiichiro Toyoda. Any or all three may one day become chairman or president. This notion of Toyota as a large family business is relevant today.
Ghosn concedes that Nissan, the third member of Japan’s Big Three car companies, was the greatest mystery to him when he arrived in Tokyo in 1999. “Compared to Honda and Toyota, Nissan’s image was a little hazy,” he writes in Shift. “It was a company capable of operating at a high technical level, (yet) Nissan’s corporate personality was confused. It gave the impression of an amalgamation of elements piled up on top of one another, without anything resembling a strategy.”
Ghosn’s fuzzy image of Nissan is not terribly surprising, given the company’s history. Unlike Honda and Toyota, both founded by strong individual leaders who nurtured their companies from the outset, Nissan was originally the product of a merger of three companies in 1933: Kwaishinsha Motor Car Works and Jitsuyo Jidohsa Company, which first came together in 1926 to form Dat Jidosha Seizo Company, followed in 1933 by the merger with Tobata Casting Company.
The new venture was called Jidosha Seizo Company Ltd., but in June of 1934 the company changed its name to Nissan Motor Company Ltd. At that time, the new Nissan combine was led by former Tobata chief Yoshisuke Aikawa, who was named president in December of 1933. A graduate of the Tokyo Imperial Industrial University, Aikawa was an industrialist who looked outward from Japan for new business ideas and technological expertise.
As head of Nissan in its early years he looked to the United States and its burgeoning car business for help in growing his company. In 1936, Nissan purchased design plans and plant facilities from the American Graham-Paige Motors Corporation for the manufacture of passenger cars and trucks. He also brought in American engineer William Gorham to improve the company’s design and production methods. According to biographer Warrick Barrett, one of Aikawa’s key beliefs was “There’s no deadlock in nature. We can find a way if we combine practical principles with theory, to devise a way without giving up, although not being reckless.”
While Aikawa was certainly a key player in the creation of Nissan, he never had the same kind of lasting impact evident in the contributions of the Honda and Toyoda families in those car companies. Nissan did grow and prosper after some initial struggles in the post-WWII period, but by the late 1990s when Ghosn arrived on the scene, the company had become a dysfunctional, indebted and money-losing operation.
Ghosn admits that the Nissan of 2005 is an emerging creature, though the stamp of change is evident. The key to the turnaround has been what Ghosn describes as “cross-functional” teams comprised of executives from all parts of the company, from marketing and engineering to design and sales.
“The idea was to tear down the walls, whether visible or invisible, that reduce a collective enterprise to a congregation of groups and tribes, each with their own language, their own values, their own interests. To compel people to talk to one another, to listen to one another, to exchange knowledge. That was the essence of their power,” he says.
For now, Nissan has the appearance of a vibrant and growing car company focused solely on creating desirable vehicles like the Nissan Altima and 350Z. Ghosn says Nissan is on track to sell 3.6 million units annually by September of this year, a boost of one million in three years. And the company is extraordinarily profitable. Whether the positive changes sparked by Ghosn are permanent, however, will only be known over time.
Ghosn, for his part, is not one to make predictions. As he moves this spring to take over the dual roles of CEO of both Nissan and Renault, he says the fairest thing to do is simply judge him and the companies he leads by the results. In his world, the only meaningful results are measured in terms of profits.
“Without profit a company is nothing,” he says.