FROM BUSINESS WORLD OF 10 JULY 2006
Management across cultures
A typical car maker makes a model in thousands, and ships
them out to dealers; when dealers sell the cars, they send their replacement
orders to the manufacturer, together with cheques for the cars sold. Cars flow
from the assembly line to the customer, and money from him to the car maker. If
there is the slightest interruption in the two flows, the manufacturer can
quickly run into trouble. Unless he can marshall the necessary finance, he
would go bankrupt. That nearly happened to Maruti under ministers who thought
they knew management; luckily the government learnt its lesson in time and left
management to Khattar. It happened more recently to Daewoo, whose remains were
carved up by General Motors (GM) and Tata Motors.
Now, however, GM, the world’s
biggest car company, is in trouble. In 2004 it produced 15 million of the total
60 million vehicles produced across the world. Ford, the next biggest, produced
half as many; Toyota was closing in on it. There were three more in the
five-million class – DaimlerChryler, Renault-Nissan and Volkswagen. These Big
Six accounted for 47 million vehicles; the rest of the industry produced a
third as much.
In this industry, technology
matters. The biggest innovation in car making since World War II was Toyota’s
just-in-time production in the 1960s. Till then, Ford’s philosophy ruled: that
the way to make the cheapest car was to produce a single model on a large
scale. But an assembly line must never stop; so inventories of components at
every point on it had to be sufficient to keep it going. Toyota made its
suppliers deliver components just in time to be assembled, and thereby cut down
inventory costs. It also trained its workers to carry out a number of
operations together, and thereby reduced the boredom of doing the same
operation again and again. And it put a tag on monocoques moving along the
assembly line which told workers what was to be fitted on them. In this way it
made different models on the same assembly line. When the oil crisis struck in
the 1970s, Toyota worked on engines and increased their fuel efficiency by
about a third. These innovations have now spread across the industry. But
Toyota remains the most profitable big car maker in the world.
As Toyota’s star rose, its
Japanese twin Nissan’s faded. Both were hit hard by the recession that engulfed
the Japanese economy at the end of the 1980s. Toyota innovated its way through;
Nissan failed. Renault bought a 37 per cent share in Nissan, and sent Carlos
Ghosn to turn it around. Ghosn moved to Japan. He learnt Japanese, but
otherwise did very un-Japanese things like selling off Nissan’s aerospace
business and retrenching 21000 workers – 15 per cent of its work force.
Initially he invited much hostility; but eventually he won respect by his
dedication, and earned the sobriquet of Mr 7-to-11, signifying the long hours
he worked. He turned Nissan around. Last year he became chief of Renault as
well as Nissan.
So when GM ran into losses, Kirk
Kirkorian, its biggest shareholder, thought of Ghosn. On his prodding, Rick
Wagoner, the chief of GM, also spoke to Ghosn. The two have been negotiating on
how their two empires can work together. At the moment, both Renault and Nissan
are wary. GM is many times bigger than they; they see no advantage from
inviting this camel inside their tent.
So for now there is no chance of
a merger between the empires. As long as Rick Wagoner is negotiating for GM,
his job is not available to Ghosn. But if GM’s condition worsens, it may become
available. Turning around GM is a challenge that could tempt Carlos Ghosn. GM
itself estimates that it will have to close a dozen factories and retrench
30,000 workers – a tenth of its labour force – in the next two years; even more
drastic measures may be required to make it a success. It is not an assignment
for the lily-livered. But what Ghosn achieved in Nissan is so spectacular that
GM is perhaps the only challenge that is big enough for him. Will he take it
up? I am tempted to think he will.
