"Creating Value in an Uncertain World"- Nissan Presentation At SAE Global Leadership Conference

Mr. Norio Matsumura October 11, 2002

Good morning. Today's theme of "Creating Value in an Uncertain World" couldn't be more appropriate. Two weeks ago, I never would have thought that Nissan would have several vessels filled with 350Zs and G35 coupes stuck at the port of Los Angeles unable to be unloaded. There is a certain irony here, as you may have noticed our vehicles are in high demand. This was not always the case. I suppose you have to be careful with what you wish for.

In fact, as you may or may not know Nissan was not always churning out homeruns like the Xterra, Altima, 350Z and Inifniti G35. To be honest, Nissan was near death a few years ago. Looking back now, I cannot help but say that the 1990s was a "lost decade" for Nissan. The company could not respond adequately to changes in the market, continuously lost money without any signs of improvement in profitability, and slipped further and further into debt. Although the company rolled out many new models, it was rarely rewarded with "hit" models, and the styling of Nissan models was routinely criticized as being "bland." Tight financing began to affect Nissan's traditional leadership in automotive technology. Nissan's brand image was on the skids and at the end of the '90s the process of model phase-out began. Nissan bore the brunt of this credit squeeze as its finances drastically went south. Banks in the same group that previously had readily made loans began to think twice, forcing Nissan to resort to direct financing. A tie-up with other automakers, resulting in capital injection, was one means of direct financing.

After all was said and done, Renault-Nissan Alliance started with Renault's acquisition of 36.8% of Nissan equity shares. That was at the end of March 1999. The Renault -Nissan Alliance basic spirit was defined, namely: Nissan and Renault should preserve their unique and distinctive brand identities, and the Alliance should pursue synergies through every possible way: such as the commonization of functions, application of best practices, etc.

In forming an alliance with Nissan, Renault identified synergy potential in the areas of technology, engineering, manufacturing, and international operations in many regions of the world. Now, three years into the Alliance, Nissan is being transformed into a profitable company. Debt has been reduced, profits are up. The transformation is quite remarkable though I wouldn't go so far as to say that our efforts are complete. I would now like to discuss how Nissan has come back and what has changed the company and our people so dramatically. How we brought value back to our products, our brand and to our company.

Nissan's revival and changes in our people would have not been possible without the leadership of Mr. Carlos Ghosn, CEO of our company.

I consider myself very fortunate to have worked with him and the Nissan Revival Plan goals met a year ahead of time.

The methods he adopted and continues to use are as follows: - First, clarifying the direction the company is headed for and the strategy mapped out - Second, motivating the people for achieving objectives - Third, identifying the rules of the game, and implementing those rules rigorously - And lastly, continually communicating these messages in simple and concrete terms to all Nissan employees around the world.

To the people in this room, these methods may not be new. Even Nissan's previous management team may have said, "We know it," "We've done it," and "this is not new to us." In fact, the company announced and implemented two major restructuring plans in 1994 and 1997. The basic direction of these restructuring plans, including a plant closure, headcount reduction, and cost reductions, was the same as that of the Nissan Revival Plan that Mr. Ghosn spearheaded. However, the difference lies in the results.

Today, I would like you to focus on "How" it was done rather than "What" was done.

It took Mr. Ghosn less than 3 months to be officially appointed as COO after he decided to take on the management of Nissan. During that period, he visited almost all business operation facilities and major divisions and energetically interviewed senior executives and managers.

He interviewed me in my position as managing director of Nissan Europe at that time. After hearing my brief explanation on the organization and status of the annual business plan, he asked the following questions. "Where do you think problems lie in the current Nissan?" and "What do you think you need to do in your area of responsibility to make Nissan better?" Most probably he must have put the same questions to hundreds of Nissan people at different levels. He found out as a result what was lacking in Nissan, namely, profit orientation, customer focus, a cross-functional and cross-border orientation, a sense of urgency, and a shared vision and long-term strategy. At the same time, he was so impressed by "the high level of loyalty" and "the dedicated work attitude" of Nissan people that I think he found a glimmer of hope for reviving Nissan.

One of the most critical "Hows" Mr. Ghosn initiated upon first assuming the position of COO was to set up nine cross-functional teams, what we call "CFT." These teams were divided by function, such as purchasing, manufacturing, research and development, sales and marketing, finance, and so forth. Their mission was to continuously pursue efficiencies; in other words, "Cost Reduction". The only exception was a team that was tasked with seeking out future growth. This team was to propose projects in which we could anticipate profitable growth, which I will elaborate on later.

The teams review current situations, benchmark competitors, identify best practices and propose recommendations. As part of the Alliance, Renault was benchmarked in their strengths, such as, purchasing costs, design processes and manufacturing costs we adopted their way of doing things.

What was particularly demanded of the CFTs was to challenge the status quo, question prevailing customs, invalidate taboos and eliminate sacred cows. We abandoned a number of traditional Japanese buisness practices including cross-shareholdings and Keiretsu relations.

CFT activities can be summed up as follows. First, they reviewed the current situation, benchmarked other companies, challenged existing functions, and stretched targets. The organization learns by benchmarking, the organization creates innovations by challenging the status quo, and the organization grows steadily by achieving the stretch targets. As a result, the organization and mindset of the people are transformed.

Another important point regarding the CFT activities is that the managers involved actually took the initiative in developing necessary action plans and setting necessary targets. In this way, targets for the Nissan Revival Plan were established from the bottom up. Every employee owned the targets as well as the action plans. These CFT activities are still up and running and are now becoming the cornerstones of the Nissan Management Way.

On April first 2000, we kicked off the first official year of the Nissan Revival Plan. The details of the plan were televised by satellite within a few hours to 130,000 employees around the globe. The custom of sharing management decisions with all employees such as three-year business plans, annual business plans, financial results, and important organizational changes before making press announcements, was firmly established at that time and is continuing now.

At the same time as the unveiling of the Nissan Revival Plan, another important announcement was made. This was something that was to significantly change the management of our company organization and had a profound effect on our corporate culture. We adopted a new three-dimensional organization that was based on regional as well as product dimensions. This is in addition to the traditional organization structured by functions. In the new structure, there are four regions-- Japan, North America, Europe and General Overseas Markets (GOM). Products were split into six groups based upon platforms. To put it simply, the organizational units have the following missions. - Functional dimension: Pursuit of mid-and long-term efficiency - Regional dimension: Profitability in a single year - Product dimension: Profit management over a product lifecycle

This three-dimensional organization has made global management a reality. It allowed to bring problems to the surface and to find optimum solutions from the standpoint of Nissan as a whole, while the dimensions mutually challenge each other.

Let me talk about global management as an example. Each regional Management Committee including North America, Japan, Europe and GOM, is chaired by one of the Executive Committee members. The progress status of the business plans are confirmed and decisions are made on important matters at monthly Regional Management Committee. For instance, I am also chairman of the Management Committee-North America. Mr. Ghosn himself chairs the Management Committee-Japan, and also other regional Management Committee on a quarterly basis to stay up to speed on actual business conditions. Issues that should be addressed on a global basis are brought to the Executive Committee for immediate debate, discussion and resolution. As a result, the EC members responsible for the functional dimension are compelled to "open their eyes" to the world.

In the past, globalization meant running operations in many parts of the world. Autonomous regional business units carried out their operations independently with loose management control from Headquarters. Sometimes they went ahead with plans or projects even if it created a conflict of interest from a global perspective. Because communication between regions was inadequate, it was often the case that we wouldn't recognize a problem until the last minute and it was often too late for us to resolve it. At present, however, all regional business units are designed to function as integral parts of Global Nissan. Problems such as those we encountered in the past rarely occur. Now our organization is structured to maximize global performance while optimizing regional performance.

Targets were set. Strategies were clarified. Key performance indicators were established. The only thing left to do was the implementation. In an ordinary environment this would have been enough to motivate the people. But this was not an ordinary environment. Taking into account the desperate situation Nissan was in and the need to maximize synergies out of the Alliance with Renault from the mid-and long-term perspective, we focused our attention on the rebirth of the Nissan identity.

To put it more concretely, we were all made aware of the importance of our brand identity and the urgency to share it. It was a kind of Chinese medicine that nourished our momentum and insured our own staying power. During the "lost decade," our employees lost self-confidence and their pride as Nissan employees went to the dogs. Nissan did not retain even a shadow of its glory days when the company was highly acclaimed as the "Nissan... Technological Powerhouse"

Earlier in my speech, I mentioned that one of the CFTs was assigned to propose what we needed to do to achieve profitable growth into the future. Within this CFT is a sub-team dedicated to the reestablishment of Nissan's brand identity. The members of this team come from several functions in Japan and those of major overseas subsidiaries. Since the team was organized, they made SWOT analyses for Nissan, sought out Nissan DNA and studied the actual situation on a global level with regard to perceptions of Nissan. Brand is a company's promise to the consumers. At Nissan, our promise to our target customers would be to provide both emotional rewards and functional benefits. Our product line up speaks to the desires of our customers. THAT'S HOW NISSAN DEFINES VALUE. Brand Identity needs to be embodied not only in products but also in service. It also needs to be expressed in the behaviors and attitudes of all our employees and all the employees of our dealers who come into contact with our customers.

All Nissan employees around the world swung into motion at once toward the achievement of the Nissan Revival Plan. The progress of the plan was reviewed at monthly Executive Committee. Problems raised were discussed and decisions taken on measures to resolve them. Details of the progress status were constantly communicated to all of the 130,000 employees around the world, and decisions made at the Executive Committee were also cascaded down to them all. As the Nissan Revival Plan has become somewhat of a routine operation, managers on the business frontline need some anchor in performing day-to-day operations smoothly and making appropriate decisions at their respective levels. Now come "the rules of the game."

It was April 2000 that the code of conduct for managers was issued: "Profit-Driven," "Customer-Focused," "Cross-Functional & Global," "Bold & Thoughtful," and "Stretch-Goals & Growth." All managers have been called on to strictly observe these 5 rules in making decisions. Top management sends a signal from time to time that these rules are not just in writing.

Just to give you an example of how these signals were sent -- a certain model bound for Europe in production at a plant in Japan was extremely unprofitable and it was suffering a heavy operating loss. We wasted no time in making cost comparison with the case of production transferred to Europe. As a result, we decided to shift production of that model to a plant in Europe, at the sacrifice of tens of billions of yen in sunk costs.

Over the past three years, various changes have occurred within Nissan. New life has energized areas that had been previously dormant and we are in the process of replacing practices that had become obsolete. This has enabled us to become more responsive than ever to changes in the market. Stretched targets is now becoming a matter of daily practice. I hope that by continuing to tackle issues cross-functionally and cross-culturally, these changes will further accelerate.

Through the accomplishment of the NRP, Nissan has come back. Basically, the NRP was the endeavor to pursue profits without assuming growth in business, although during its implementation period, we did sow seeds in products, technology, brand and other fields for future growth. We achieved the commitments and objectives set forth in the NRP a year ahead of schedule. We have to shift up a gear to put the company firmly on track for lasting profitable growth. By successfully concluding the NRP, our people have restored confidence in themselves and have begun to regain pride in the company. The company's identity has been clarified. Our Alliance with Renault is expected to pick up speed. Our people are driven, charged with "motivation." Under these circumstances, NISSAN 180, a new 3-year business plan for growth, was launched. Although Mr. Ghosn has left the execution of business operations to EVPs in charge of different spheres of operations, all of the senior executives are systematically connected to one another. So, all he needs to do is set the direction. This has been made possible because on everything he consistently takes a transparent and straightforward stance.

I have talked about the organization, structures, and systems that Mr. Carlos Ghosn introduced for the revival of Nissan. It has been 3 short years. I have experienced and learned a lot of things. Not a day passes by without learning something new. I am still learning. If I were allowed to wish such a thing, I would wish that I had encountered Mr. Ghosn much earlier.

I would like to share with you the three key words that characterize his management style. They are "Performance," "Focus" and "Transparency." His greatest achievement in my opinion is that he has been able to restructure our mindsets.

Thank you.