What Can Carlos Ghosn Teach Us About Asset Management Business Strategy? Carlos Ghosn has been in the news headlines recently due to his efforts to tie together Nissan, Renault and now General Motors in some form of a business combination. The announcement of these discussions has drawn out the critics who are attempting to deconstruct and dismiss Carlos Ghosn’s successful track record at turning around Nissan. Even those willing to acknowledge the strong results that he earned at Nissan are skeptical for other reasons. For example, some critics are suggesting that the strategies that he used at Nissan just won’t work at GM. I believe that the critics are missing the point. It remains to be seen if Carlos’ approach to strategy is the best one to pursue over the long term. However, based on my understanding of the principles that he applies in developing strategy and based on my personal experience, his approach to developing strategy is the best that I have seen. So what is so special? I think that there are several critical elements. One is the use of cross-functional teams for developing business strategy. Teams are created from individuals volunteering to work on business issues and they are drawn from different functional areas – sales, portfolio management, compliance, operations and so on. These teams then focus on developing initiatives which ultimately form the strategic and implementation plan. This bottom-up approach to developing strategy is particularly well suited to the asset management business in my view. First you have very smart senior professionals in this business who have rarely worked together in a non-hierarchical way on business problems before so there is a lot of untapped potential. Second these same professionals will be ultimately responsible for executing the plan so why not have these people involved in developing the initiatives? What do these teams focus on? In my view no stone should be left unturned. The general areas of examination for initiatives will rarely vary between asset management firms and include sourcing capital for new initiatives, cost efficiency, innovation, portfolio management quality, human resources, sales, client service and geographies to be served. Compliance, operations, technology and other support areas also need to be considered to support the emerging demands of the business. The specific areas of emphasis will of course vary by firm based on the competitive environment faced by each firm and its own resources. The specific emphasis should be guided by an overarching goal for the firm – whether this is the straightforward pursuit of alpha or meeting short-term profit targets as is typically the case with a public company. In any case the overarching goal needs to be a stretching, ambitious target. A typical rule of thumb is that your goal should only have a 50% chance of being realized in order to ensure that it will be motivating. Is there a role for external support i.e. strategy consultants in this process? I have found that some external support can be helpful to help structure the strategic development process, to do research to support the development of business cases for initiatives developed by the teams. But the role of consultants is strictly a supporting one. What is the role of senior management given my description of this bottom-up process? If the bulk of the initiatives are developed by cross-functional teams, this does not mean that senior management has no role to play. Some crucial areas for their involvement include ensuring that the process for developing initiatives is consistently applied across teams. A second is to ensure that the teams do not go too far off track in developing innovative ideas that are either inconsistent with the firm’s culture or entirely impractical. Third, senior management retains the responsibility for business portfolio decisions such as M&A, either opening or closing lines of business, balancing the risks and rewards of business diversification. Overall this approach to developing strategy has the implementation process baked into it. As mentioned earlier, the initiatives are developed by those who will be held accountable for its execution as well. This is a serious advantage over many traditional approaches to developing strategy in my view. Does this approach work in practice? Carlos Ghosn has demonstrated how it works in the car business. Because of the relative immaturity of strategic development in the asset management business I believe that the opportunities for this approach to contribute to breakthroughs for asset management firms is tremendous. I have seen it work first hand on 2 occasions. The beauty of this approach is that while the process is fairly rigid, the outcome is a custom one which responds to both the present and future capabilities of the organization and its environment. Russell Campbell (312) 343-0079 Russell1@vzw.blackberry.net