In this module 5 case study, I will read “The gaijin who saved Nissan”. I will discuss what Carlos Ghosn and Nissan did in order to manage global financial risk and why they did it. I will also discuss which of Napolo’s 8 steps Nissan followed and which they did not.
Napolo’s 8 steps
Dave Napolo was the Senior Vice President of Foreign Exchange as Wells Fargo. He developed an eight step process to mitigate the risks associated with foreign exchange. Step one was to define the corporate philosophy and objectives. Step two was to identify exposures while step three quantified exposures. Step four defined risk management policies and procedures and step five identified strategies to manage risk. Step six was to execute strategies, step seven monitored exposures and hedges. Finally, step eight reviewed and measured performance.
Ghosn and Nissan
When Carlos Ghosn became the Chief Operating Officer on Nissan, it was a failing company with massive debt. Nissan looked to Ghosn to turn the business around. Before he was able to do that, he took the time to visit all the Nissan factories worldwide and installed nine Cross Functional Teams to analyze Nissan’s problems. These teams had to uncover every problem within their section and set new, realistic goals. Each team was given three months to do this. (Ogilvie, R.) After the teams had made their analyses and goals, Ghosn was able to announce his strategic plan for the revival of Nissan.
For starters, Ghosn decided Nissan needed fewer and simpler factories. Nissan had too many factories and was using 53% of its capacity. Due to this, 5 factories in Japan were to be closed. Nissan needed to reduce purchasing cost by 20% which also included the reduction of the number of suppliers from 1145 to 600 firms. (Ogilvie, R.) Ghosn reduced general expenses which included marketing and administrative expenses as well as the number of sales subsidiaries in Japan by 20%. Ghosn also freed up non-strategic assets and applied those to the core of the business and significantly reduced Nissan’s debt and finally, he reduced the total personnel of 148,000 full time employees to 127,000. Of the 20,000 layoffs, 16,500 were from Japan. The only department that did not suffer personnel cutbacks was R&D which was actually able to hire 500 more employees. (Ogilvie, R.)
Managing Global Financial Risk and Napolo’s 8 Steps
I believe Ghosn followed Napolo’s eight steps but just not in the exact order. Step one defined corporate philosophies and objectives. The company philosophy at the time was that Nissan was just too big to fail. The executives of Nissan believed if the Keiretsu-linked bands didn’t rush to the rescue then the government would but due to a decade of economic stagnation this was not true. (Bloomberg 2013)
Step two was to identify exposure which Ghosn did. Nissan was part of a business alliance called Keiretsu which favored stability over sound financial management. Nissan had Billions of yen tied up in cross-shareholdings with suppliers and Keiretsu partners. If Nissan were to make a decision that affected another company in the alliance, it was looked at as unfavorable.
After Ghosn discovered the risks, he needed to determine if the risks were worth it. Because of Nissan’s financial misgivings in the past, the company was in great debt and had to rely upon local suppliers for the majority of its goods. Ghosn wanted Nissan to remain competitive in the global market and decided it was worth taking risks for. He decided to modify Nissans finances and supply chain. When Ghosn installed nine cross-functional teams with the goal to uncover problems and develop new and realistic goals, this was step 4 and 5 of Napolo’s eight steps.
These nine teams set out to identify risks and determined solutions to those risk. With the first five steps accomplished, all Ghosn needed to do was step six- execute. He took every issue the nine teams discovered and dealt with those issues. Step seven was to monitor which he did and finally step eight was to review. After the plan was executed and monitored, the review was simple because the results were obvious. Within a year of Ghosn’s arrival, Nissan had a profit of 2.7 billion dollars and showed a profit margin of 10.8% becoming the world’s most profitable major car manufacture. (Ogilvie, R.)