2006 Speeches
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Jim Morton - Traverse City, Michigan Remarks [Aug. 9, 2006]

- SHIFT_ 2.0: Embracing Change at Nissan North America, Inc. -

Good morning and thank you, David.  It’s an honor to be here as part of this distinguished panel.  In the next few minutes I’d like to tell you about how we are continuing to “flatten” the world at Nissan North America... how we are unlocking the energy and intelligence within our organization by thinking “horizontally”... and how we are defining our own future by embracing change.

Before getting started, however, there’s one area that I will not address today – the potential alliance between Nissan, Renault and General Motors.  As you know, we’re in an information “blackout” period, and I must honor our agreement to not discuss it.

SHIFT_ 2.0
In his book, The World Is Flat, Thomas Friedman writes about three periods of globalization.  He identifies Globalization 3.0 as beginning around the year 2000 – which was about the same time Nissan was introducing our first truly global marketing and branding campaign, which we called “SHIFT_.” 

“SHIFT_” was designed to be more than just a global tagline or identity program.  It was – and is today – a statement of commitment to change... a pledge to look closely at everything we do.  One of our creative writers once described it like this: “A SHIFT_ can change a life, a person, the world, or it can simply change the way you move through it.”

Clearly, the concept of “SHIFT_” changed Nissan.  “SHIFT_” became the lens through which everyone at our company looks at our business, our customers and our environment.  It has been both the cornerstone and the rallying cry for everything we do for our customers, our dealers and our employees.  “SHIFT_” is an embodiment of flat thinking and change management.

This summer we are introducing the next generation of Nissan thinking, “SHIFT_ 2.0” – just in time for the next wave of Nissan and Infiniti model launches, including our best-selling vehicles in each division, the 2007 Nissan Altima and 2007 Infiniti G35 Sedan.

At the same time that we are reloading our model lineups, we are also transforming our North American management organization with the relocation of our headquarters from Southern California to Middle Tennessee.  And that’s what I’d like to focus on this morning – how Nissan North America is getting ready for the challenges of tomorrow, through change management today.

Relocation Timeline
When we introduced the concept of “SHIFT_,” we asked Nissan employees around the world to look at everything from a new perspective... to ask questions that hadn’t been asked before... to work across functions, across cultures and across countries to find better solutions and deliver better performance.  And clearly they did.

I know everyone is familiar with the improvement in Nissan fortunes since the late 1990s.  In the U.S., our sales have topped one million units for two consecutive years with below industry average incentives, our profitability has been among the best in the industry, and the number of models in our Nissan and Infiniti lineup has nearly doubled.  We’ve entered new segments such as full-size trucks and SUVs, crossovers, brought back the iconic Nissan Z, and introduced such innovations as Infiniti’s Lane Departure Warning System and the Nissan Titan’s Utili-track pickup bed.  We’ve built the brands, both Nissan and Infiniti, and have strong, vital and profitable dealer bodies. 

With all of this success, some people might think Nissan would be the last company in the industry to undertake a change as bold as relocating our national headquarters.  But that’s “round” thinking... the old “if it ain’t broke, don’t fix it” mentality.  In today’s “flat” world, you cannot get caught in the past or you will be left behind.  You cannot resist change, or the world will force it on you.  Resistance to change nearly bankrupted Nissan in the 1990s.  We will not let it happen again.

But change doesn’t come easy, or without detractors.  The first question that would always come up when talking about creating a new headquarters outside of Los Angeles was: “Why would any car company want to leave Southern California, the home of hot rodding, custom cars, Hollywood and nearly every major automotive fad or trend since World War II?”  Why leave “Motor City West,” the home of advanced car design studios, every major Japanese automaker, and the leading new media and marketing companies?

But Nissan’s situation in Los Angeles was not ideal and hadn’t been for some time.  In fact, the idea of relocating our headquarters had been considered a number of times that I know of, prior to my joining Nissan in 2000.  The 35-year-old, sprawling Gardena campus consisted of 13 different buildings on 40 acres, many in need of repairs or updating.  Stay or move, there would be considerable costs involved either way.

In the 1990s we didn’t have the resources to move forward.  And, in the new century, when we did, the idea of relocation posed a potential distraction from our revival and recovery plans, so it became one of those ideas with a number of starts and stops. 

Then in early 2003, a delegation of public officials from Tennessee – including the governor, governor-elect, its two U.S. senators and state and local representatives – met with a group of Nissan executives in Washington, D.C., and encouraged Nissan to strongly consider the benefits of consolidating our North American operations in Middle Tennessee. While there were internal discussions thereafter, it was in the spring of 2005 when a small team started seriously looking at the pros and cons of relocating the corporate headquarters to Tennessee or elsewhere.

Some of the positives were very compelling:
· A central location would put us closer to more of our customers and dealers – over 70% of Nissan’s customer base is located within a two-hour flight from Middle Tennessee.
· A central location would put us in the center of the “crescent-shaped” heart of auto industry – which stretches from Ontario, Canada, down through Detroit, Ohio, Tennessee and into Mexico – and closer to our supplier base.
· We could expect stronger synergies between our manufacturing, R&D, marketing, sales, administration, quality and just about every other part of our business.
· Tennessee, as we knew from operating our manufacturing facilities for 25 years, is a pro-business environment with progressive and supportive government and business leadership.
· Southern California had become very expensive for our employees – in terms of housing and the overall cost of living, and
· Tennessee has put in place a very strong incentive package to encourage corporate headquarters to locate there.

On the downside, a few negatives:
· A central U.S. location would put us further from Tokyo, which would be a factor in both flight time, as well as being two time zones further away for phone calls and video conferencing.
· The weather in Southern California is hard to beat.
· And, based on benchmarking other companies’ headquarters moves, we knew that we risked losing more than 50% of our employees – and, with them, a lot of talent, experience and institutional knowledge.

The benchmarking of other major businesses has played a critical role in many ways.  We looked at the patterns of employee retention and replacement; we looked at the best practices in relocation services; and we are looking at the best practices for new headquarters buildings designs, layouts, furniture, etc.

There was a strong case for change, and some potential threats – including the possible disruption of our aggressive new model launch schedule.

In the end, it came down to an internal debate that could have gone either way.  We made the decision to move to Nashville in November 2005.  Now, just eight months later, employees have relocated to our temporary headquarters in Nashville’s BellSouth Building, and development has started on our new 450,000-square-foot, $100 million headquarters building in nearby Cool Springs.  It should be ready for occupancy by mid-2008 with room for 1,500 employees.

Like we say about our Nissan and Infiniti vehicles, the new headquarters building will combine a stylish design, advanced technology, great ergonomics, will be environmentally sensitive and meets the needs and desires of its users.

Opportunities and Outcomes
But that’s not the end of the story – the decision to relocate was only the beginning of this “SHIFT_.”  In a “flat world,” Thomas Friedman explains, change is shifted into warp drive.  And that has certainly been the case with our relocation. 

In the next few minutes, I’d like to take you through six “opportunities” that we identified before the relocation – and tell you a little about the outcomes we’re already seeing since the move.

First, synergy.  We all know that one of the longstanding ills of the auto industry is the existence of “silos.”   Engineering doesn’t talk to design, marketing doesn’t talk to manufacturing, pricing doesn’t talk to purchasing. 

Under the Nissan – Renault Alliance, Nissan has done an exceptional job of tearing down silos.  Our use of Cross-Functional Teams, or CFTs, has brought disparate groups together to solve problems in every area of the company.  We now work comfortably across departments, across disciplines, across countries and across cultures.  As a global organization, we’ve learned to work through language barriers and multiple time zones. 

Now, with many functions like Legal, Finance, Corporate Communications, and others being together, for the most part, in one location and being just 20 minutes or so away from our manufacturing base and a relatively short flight to our advanced research and design center, the Nissan Technical Center in Farmington Hills, Michigan, we’re already seeing benefits in terms of accelerated collaborations – and we predict an unlimited future in creating new synergies and new value for the company and our employees.

To give one example, consider our Field Quality Investigation group, which has the responsibility to receive problem vehicle parts and do the initial investigation to determine if the issue is due to supplier nonconformance to specifications… to a problem in parts installation in the manufacturing process… or in the design of the part itself. 

In the past, whenever a part problem surfaced, the part might have been investigated in Los Angeles, then sent incorrectly to Trim & Chassis parts engineers at the manufacturing plant in Smyrna or Canton… or to design engineers based at our Technical Center in Farmington Hills.  If the initial guess in L.A. was wrong, that problem solution was going into slow motion. 

That’s not the case anymore.  Due to improved proximity and better understanding of who is an expert on a given subject, the initial investigation can easily be a cross-functional investigation including manufacturing and design engineers.

The relocation has given us an opportunity to establish greatly enhanced and timely cross-functional activity.  We are modifying an existing building on the property adjacent to our Smyrna plant, and the Field Quality Investigation group is now based there.  As a result, we have a definite return point for parts… less handling of parts… clearer communication among the engineers, manufacturing staff and suppliers involved in problem solving… and quicker solutions with greater visibility.  It will be a smart move and in keeping with our culture of enhancing cross-functional collaboration.

The second opportunity is proximity.  In the past six or so years, Nissan has invested heavily in “flattening” our communications infrastructure.  We have the means and the methods to link any employee to any other in any part of the world.  But now, an interesting thing is happening in Nashville – we’re rediscovering how to talk to people face to face.  With the close proximity of once-distant functional groups, we’re already seeing benefits of people getting together in less formal, less time-constrained meetings and locations.

Our new headquarters building will take this opportunity even farther – it’ll have large, alternating atriums on each of the nine main floors, enabling employees to walk from floor-to-floor, encouraging the cross-functional collaboration that has become a Nissan hallmark. 

There are plenty of examples to prove the point, but, again, the field quality example is a good illustration.  The experts who are investigating parts issues are an hour’s flight away from our tech center and our Canton plant and a 15-minute walk away from the shop floor in Smyrna.  Issues that might have taken weeks to evaluate in the past are now much easier to address – in part, because the players are closer together and they know each other well enough to develop relationships and trust.  It’s just simpler to get the right people focused on the same problem at the same time.

The third opportunity is realignment.  When you move your household, you’re forced to clean out your cupboards and closets... you see what you don’t need or use any longer, reorganize what you’re keeping when you put it back.  The move to Tennessee has allowed Nissan North America to look closely at and reorganize some of our functions, including HR, Finance and Legal, to better align with our business objectives.

Our Finance group provides a good illustration.  In the past, we had finance staffs in Los Angeles, in Dallas, in Smyrna and in Farmington Hills – and many of them were performing the same kinds of functions in those four locations.  The controller conducted staff meetings by teleconference, by necessity.  The job was getting done, but it was apparent that there were redundancies in the system, and it took great effort to gather key players to focus on important objectives such as strategy or career development planning.

With the headquarters relocation, Nissan has reorganized its entire Finance group into a truly cohesive, more effective organization.  Core functions are now centralized in one place – at headquarters.  Smaller staffs remain at the plant, for example, to support Manufacturing operations, budgeting and forecasting needs.

And each major functional group – that is, Sales & Marketing, Manufacturing, our finance company and G&A – now has its own controller to serve as a strategic business partner and a challenger of each function.  Each Finance director’s responsibilities have been realigned to fit customer needs, and we’re excited about the benefits we expect to realize from this streamlined, more efficient organization.

Fourth, cost savings.  Much of what historically has driven globalization throughout history, according to Friedman, has been cost savings.  Nissan North America has received some attractive incentives from Tennessee as part of the headquarters relocation package the state typically offers in its economic development efforts.  And it is no secret that the cost of doing business in Tennessee is less than the cost of doing business in the metropolitan Los Angeles area.  The cost savings are expected to be significant, in both the short term and over the long term.

The fifth opportunity in relocating to Tennessee is the pro-business climate there – which is making the region one of the most dynamic business centers in the nation.  Tennessee officials are accessible and interested in our business.  Tennessee is proud of its automotive business and auto sector, and Nissan knows it is a valued partner in Tennessee.

Here are a few other facts you might not know about Tennessee:
· There are 978 automotive related companies currently operating in Tennessee, employing about 130,000 people.
· 975 of those are suppliers, three – Nissan, GM and Peterbilt – are assembly operations.
· Tennessee is home to 122 corporate headquarters – including 21 Fortune 1000 companies; eight companies have moved to Nashville in the last 30 months.
· In 2004, Tennessee Governor Bredesen completely revamped the state’s Worker’s Compensation System, reducing costs to business by $70 million in the first six months of the program, while preserving workers’ rights.
· And in July, Business Facilities magazine named Tennessee the nation’s number one state in the area of “economic development effectiveness.”
· This follows the article in Kiplinger’s magazine ranking Nashville first among the “50 Smart Places to Live.”

As Kiplinger’s pointed out, Tennessee is very “pro-people,” in the sense of affordable housing, no state income tax, lower cost of living, and educational, cultural and recreational opportunities – things that our relocated California employees are finding very attractive.

The final opportunity we envisioned was the proverbial “blank sheet.”  We usually invoke this idea when talking about new vehicle design, but the same theory holds true for companies and buildings.  In 1958, when Nissan North America opened its doors in Southern California, no one could have predicted how the company would grow – and certainly not the facilities planners. 

Over the years, starting with our move to the Gardena campus in the early ‘70s, we added buildings, functions, offices, cubicles, more buildings, more cubes, a gym and a cafeteria.  Sometimes employees needed maps to find other departments.  Sometimes we ran out of parking.  Often we wished for the opportunity to have a building that worked for us – rather than just a building we worked in.

Our new Cool Springs headquarters will do just that.  The building will be customized specifically to our business and employee needs, now and into the future.

I’ve touched a little on outcomes so far in terms of business opportunities.  But I’d like to also address the people factor.  When we announced the move, we expected that more than 50% of our California employees would stay behind.  Now that we’ve settled in, 57% chose not to move, while 43% have come with us – most to the BellSouth Building in Nashville, some of them to our facilities in Smyrna, Tennessee, Farmington Hills, Michigan, or other locations.  At the executive level – directors and above – 79% chose to stay with the company. 

We regret, of course, that we have lost some very good people and some institutional knowledge.  But it’s something we can overcome.  Nissan has always had a very strong bench, and we’ve been able to fill most of our top positions from within the organization.  We’re also calling on top talent from outside the industry – such as our new general counsel, who comes to us from Sears.

Of the open positions throughout the organization, 80% have already been filled.  And we’ve received 45,000 resumes to date, with more coming in every day.  We expected to be fully re-staffed in the very near future. 

And, perhaps, that has been one of the unexpected, pleasant surprises during this move.  When the relocation idea was first raised, one of the senior management team’s concerns was about employee talent.  Some felt that, given a move of this magnitude, we couldn’t possibly re-staff to capacity until December of this year.  But that worry hasn’t materialized. 

Our Human Resources staff did an amazing job of assessing needs and putting a plan of action in place to lessen the possibility of disruption.  With a series of recruiting events, advertising, Web site referrals and full-court press efforts, the recruiting team did a fantastic job of working seamlessly to fill open positions and get new hires integrated into the organization.

And all this activity happened in a tight timeline.  The BellSouth Building in downtown Nashville, where we now occupy 12 floors, was still occupied by BellSouth employees until April 1 of this year.  Our Facilities team had 11 weeks to reconfigure the workspace, install equipment, purchase and install furniture, and prepare the space for its first occupants.

When the first employees walked in the door on June 19, they were processed in half an hour and could report directly to their workstations to plug in laptops and check e-mails.  A few hours to unpack, and they were ready to go.  We had some downtime related to the move and some minor issues here and there, but good planning and good execution made a huge contribution. 

In terms of disruption, while it’s too early to form a final judgment, our sense is that the disruptions have been limited.  We’ve already launched the new 2007 Nissan Quest minivan, flagship Nisan Maxima sedan and the all-new, entry-level Nissan Versa Hatchback.  This fall we’ll launch the all-new Nissan Sentra, the all-new Nissan Altima and the all-new, second generation Infiniti G35 Sedan.  All are on schedule and on budget.

Ultimately, the wisdom of our relocation will be proven over time.  In today’s “flat world,” time is often compressed, so we shouldn’t have to wait too long.  We know that change is a must in today’s business climate.  We know that it is better to make change in a time of strength, rather than a time of weakness. 

And we know that a good business strategy... a good business decision... does not mean that the road ahead will be any easier or more predictable.  Just as the growth of computers and the Internet have not reduced the workweek, a “flat” auto world will not relieve us of the basics of our business – creating and building cars and trucks that people want to buy.

At Nissan, we’re doing just that.  The proof is in our showrooms, with more attractive, competitive models coming in the next few months.  And with the enhanced synergies, reduced costs, accelerated collaborations and the best employees in the business, we believe the best is yet to come.

Thank you for your attention.

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