Overcoming Crisis

INTERVIEWER It sounds as though you’ve successfully made crisis readiness an integral part of your corporate culture. Were there any difficulties along the way?

SHIGA I think one key factor is the way we came through our business crisis in the 1990s. Beginning in 1999, the year we entered our alliance with Renault, our performance started to improve steadily. Then in 2008 we were plunged into danger again due to the global financial crisis. This means that our employees know all about how important it is to make intensive efforts to get through times of crisis.

Our 1990s crisis saw us bleed red ink for eight straight years. This lengthy downturn accustomed us to a business that never improved. Even when we came up with a plan to turn things around, we wouldn’t implement it swiftly enough, necessitating further measures that were also too little, too late. Our situation went further downhill. If you’re constantly late in responding to problems you’ll never achieve a recovery. Through the Nissan Revival Plan, which we announced in 1999 to put our business back on a sound footing, we learned our lesson at last, and we came to understand the need for intensive effort—even if it involved some pain—in order to achieve a swift recovery.

We implemented intensive measures after March 11, too. For example, we put all new development on hold and cancelled all overtime throughout the company for three months. We put a stop to almost all expenditures, clamping down on cash flow in preparation for a possible worsening of the situation. I think our people were very receptive to the message that we needed to get these intensive measures in place right away. Now none of this was the sort of voluntary restraint you saw from a lot of businesses after March 11; it was all based on calculated decisions by Nissan’s management. I feel that our people showed a real understanding of our risk management approach and a willingness to go along with it.

It was around 2001, right in the middle of the Nissan Revival Plan, that we launched the risk management that has blossomed into what it is today. After that it was a process of trial and error. We identified risk factors that could impact the sustainability of our business, produced a risk map for the company, and tapped executives to serve as “risk owners” in charge of dealing with specific areas of risk. Once we had fairly reliable measures in place to handle a risk we removed it from our list and came up with new factors to address. This is the PDCA cycle—we plan a response to risk, do what’s needed, check whether our steps were effective, and act as required to improve the approach. And we put this PDCA cycle to use in preparing for earthquakes, as well as in putting together a business continuity plan for our supply chain.

A company with a functional risk management approach in times of crisis is also a company that can take on bold challenges in ordinary times. Nissan has become a firm that does not follow others but crafts its own unique strategy and pursues it to produce results. This can be seen in our strategy for emerging markets and the energy we’re putting into electric vehicles, for instance. Following other companies’ lead doesn’t involve any major risk, since you can make your decisions based on what they have done wrong. But Nissan is taking the lead in various fields, and this involves all sorts of risk. The more daring our strategies are, the more vital it is for us to manage risk in a way that takes all these possibilities into consideration.

Let me give an example. If we looked only at the dangers immediately in front of us, we’d be reducing investment because of worries about the end of the Chinese economic bubble or the euro crisis, and we’d end up not achieving any growth. I feel that the Japanese economy is in this sort of mindset now. At Nissan, though, even in times like these we’re committed to strategies that put us in the front of the pack. Our latest midterm business plan, Nissan Power 88, is also a bold, ambitious package in this regard.

Risk management means more than just regular preparations for disasters or global economic problems. It also means producing bold visions and strategies and preparing to achieve them.

Automobiles at the Heart of Japanese Industry

INTERVIEWER It certainly sounds as though Nissan has been striving to stay prepared for every eventuality. The Japanese government, in comparison, seems to have been late with everything it’s done in response to the March 11 crisis. Even on measures to conserve electricity, industry appeared to be taking the lead, rather than the government.

SHIGA Automobile manufacturing is one of Japan’s leading business sectors. Indeed, we see ourselves as a pillar supporting Japanese industry as a whole. After March 11 we did what had to be done out of the understanding that if we didn’t pull our weight, the entire nation would be in trouble.

Let’s look at the numbers. Including parts, the exports of Japan’s automotive industry in 2010 amounted to 12 trillion yen. The industry was also responsible for imports worth 600 billion yen. This means that automobiles alone contributed more than 11 trillion yen to the nation’s trade surplus. Japan’s total trade figures came to 67 trillion yen in exports and 61 trillion yen in imports, producing a surplus of 6 trillion yen—so it’s clear that if the automotive industry becomes unable to export its products, Japan suffers a trade deficit.

Sure enough, in April 2011, after the quake had shut down so much of the industry’s production capacity, Japan racked up a trade deficit for the month. When the country slips from a surplus to a deficit like this, it eventually impacts the current account balance and the potential for issuing new bonds. The auto industry bears enormous responsibility in this regard.

Unfortunately, the industry’s production was halted by the March 11 disaster. This dealt a serious blow to the Japanese economy. The region affected by the quake and tsunami is home to some five hundred suppliers, which employ a huge number of people. These small factories can’t get back into operation if there’s no automobile production taking place. The same can be said of the chemical product manufacturers and the steelmakers in Kashima, Ibaraki: if we aren’t working, they can’t work. So we’ve got to get moving as quickly as possible to be a locomotive for Japan’s economy. After the disaster we were very aware of this fact.

The rolling blackouts implemented in response to electricity shortages brought manufacturing to a halt, putting quite a damper on our attempts to get back to work. Initially we planned to boost production gradually in July and get back to full steam from later in the summer through the fall. In this way we hoped to bring economic benefits to the disaster-stricken zones and contribute to the national recovery. But the blackouts threw a wrench into this plan.

The alternative to these planned blackouts, though, was unplanned, widespread power losses, which we knew were unacceptable. The automotive industry consumes a considerable amount of electricity. As an industry, we decided to halt our operations on Thursdays and Fridays, traditionally the peak of our power usage, so that consumption could be smoothed out over the course of the week and other industries could continue to function normally. The auto industry moved as one to shift its weekends forward by two days.

We took this decision because we thought it was the most effective way for us to contribute to society at the time. This wasn’t an easy thing to ask of our workers and their families, whose lives were disrupted by this change in their schedules, and we caused hardship to other people in communities where our facilities are located. So it was gratifying to hear from all these people that despite the hardships involved, in the end they were proud to have done their part for Japan. We asked a lot from our people at that time, but I’d say it was a wise choice, considering how it gave each and every one of them the chance to sense our industry’s responsibility to society.