Turnaround (2004-2008)
Something unprecedented and amazing has recently occurred to FIAT, something that can be defined, as The Economist calls it, ‘the miracle of Turin’. Since the arrival of Sergio Marchionne in June 2004, a new wind started to blow into the company and unexpected and unseen results have been reached in a short period of time notwithstanding adverse market, economical and financial conditions. A few data can easily describe how dramatic the situation was in 2004: FIAT Auto was on the brink of bankruptancy, and despite the usual government subsidies, the total losses of the previous 5 years amounted to 12 billion €. General Motors owned a put option over Fiat of 1,55 billion € which was considered the last parachute before the seemingly inevitable insolvency. It is definitely an hard path that of following Marchionne and grasping the essence and the features of his revolution, so numerous have been the changes in these last years. But for sure these key aspects cannot be omitted from a possible analysis:
- Change in culture and emotional involvement: the first thing the CEO realized when arriving in FIAT was the urgent need of changing unwritten rules and bad practices that were sinking the company creating vicious circles of inefficiency and unsatisfactory performances. It was first of all a matter of culture: FIAT had to see the future as an opportunity, change had to be seen as a need and the challenge of newness had to be embraced. At the same time Marchionne nurtured the national pride and the dignity of being FIAT, which were buried under years of inefficiency and passive acceptance of decline, and introduced a culture of transparency and honesty.
- Focus on core competences: while maintaining a strict control over the many different businesses in which FIAT was involved, Marchionne made sense out of that mass: the company was to be considered first of all a car producer and in producing cars strive for excellence. As he took control of the car division, becoming at the same time Chief Executive Officer of Fiat SpA and of Fiat Group Automobiles, he installed a new breed of young managers and gave his new team both clear targets and the support needed to hit them.
- Design, innovation and creativity: Italians are worldwide known for their sharp creativity and strong tradition in fine arts. Despite this fact, before 2004 the models produced by FIAT, such as Stilo and Multipla, showed very little design expertise. As an automotive newspaper puts it “Marchionne focused on making cars that people would want to be seen driving”. In order to do so, a general restructuring of the whole design process was to be done. Fiat Group Automobiles’ new Style Centre was inaugurated in July 2007. The Centre put all the research and design activities of the Fiat, Lancia, Fiat Professional, Abarth and Maserati brands into one Style department. An industrial building within the Mirafiori complex called “Officina 83”, which had served originally as a machine shop, was refurbished to provide headquarters for the new Centre. The workforce numbered about 200 people, aged 37 on average, with professional skills ranging over the entire styling process: designers, ‘digitisers’ and model makers. The rooms inside the Centre have been designed in a very modern key so as to best serve the creative aspect of activities linked to the definition of car design (Fiat website).
- Brand and marketing: In order to give a clear signal to the market the company underwent a rebranding process: the outcome was a brand that connected the ideas of Fiat old tradition and the aspects of modernity and innovation. The strategy significantly changed also for what regarded the marketing: new intensively emotional ads appeared on TVs usually accompanied by Italian popular hits and in newspapers that awakened the concept of Italian pride and conveyed a message of beauty and modernity associated with the products. Emblematic in this sense have been the ads for the new Punto and Bravo and more recently for the 500 model, whose successes are well beyond any previous estimation. Moreover he provided a clear identity to all the different brands, such as Lancia, Alfa Romeo and Maserati.
- Efficiency and financial excellence: as we said before the financial position of Fiat was very close to default. Marchionne first step was that of making the company more supple by concluding the partnership with GM and gaining 2 billion $ of cash. On the efficiency side, engineers were told to cut out duplication in car parts that could easily be shared across the whole range and of the today 18 different platform of product development Fiat is planning to move to just 6 within 2012. At the same time he slimmed Fiat's corpulent administration to a size more suited to its modest output. Finally efficiency was achieved in the design process as well, by using virtual engineering instead of costing and time consuming prototypes. Fiat Bravo was developed in just 18 months and Fiat 500 in 19 months while before it usually took from 24 to 36 months.
- Simplification and market instead of hierarchy: in his first 60 days at FIAT the CEO fired about 30% of the company’s top management, simplifying many of the internal practices and fighting against useless bureaucracy. As Davide Perrat, manager in the business development department told us, “that contrasted with the usual practice of closing plants and firing workers and was a significant contribution in making the pyramid flat, where merit and not age became the discriminator of career possibilities”. A young team of talented managers rapidly rose to senior executives roles. Marchionne himself embodied the concept of this cultural change: instead of ties and shirts, a must in Italian business environment, he usually wears a common pullover or T-shirt, posing himself as a signal that it is not appearance that makes value but the results. All managers are valued according to customers general satisfaction so that if one sector works bad everybody is responsible.
- Alliances, JVs and co-opetition: once financial stability was reached and business volumes had achieved a critical mass, Marchionne started to go out in the global market. This time, anyway, many things had changed: Fiat was not anymore looking for merciful partners to share their inefficiencies with, but for opportunities and new markets to be exploited. Many joint ventures and strategic alliances were established especially in emerging markets and previous agreement were reinforced (such as Tata in India, Nanjing in China, Tofas in Turkey, Severstal in Russia, Mekong in Vietnam, PIDF in Iran and Zastava in Serbia). The new logic was that of cooperating with competitors, in a word “co-opetition”.
- Overachievement and optimism: ambitious financial goals were set and usually met without any fail. But this was not enough: budget goals were considered the threshold of sufficiency but as Fabrizio Curci, a FIAT manager, recently declared “ if your goal is that of doing 100, managers typically produces 120-130”. Competition among managers substituted the long established inefficiencies and all of this encouraged more and more their creativity and willingness of running reasonable risks.
While Icarus is quickly approximating the Sun, his wings are stronger than ever. What was previously a depressed company, came to be a textbook example of well organized and profit creating corporate in less than 4 years. Probably the most impressive indicator of how powerful this turnaround has been can be stock price: from a 5-6 € per share in 2004 it is in these recent months stable at a value of 15 €. Fiat’s net financial position which was in 2004 -1773 millions of € is today +355 mln €. In this same period the total volume of sales has increased by 24 % (from 47 billion € to 58,5 billions) and total profits of the group are today near 2 billion €. The turnaround has quickly and successfully concluded without undergoing painful decisions and apparently only considering and using internal resources and capabilities.
Something unprecedented and amazing has recently occurred to FIAT, something that can be defined, as The Economist calls it, ‘the miracle of Turin’. Since the arrival of Sergio Marchionne in June 2004, a new wind started to blow into the company and unexpected and unseen results have been reached in a short period of time notwithstanding adverse market, economical and financial conditions. A few data can easily describe how dramatic the situation was in 2004: FIAT Auto was on the brink of bankruptancy, and despite the usual government subsidies, the total losses of the previous 5 years amounted to 12 billion €. General Motors owned a put option over Fiat of 1,55 billion € which was considered the last parachute before the seemingly inevitable insolvency. It is definitely an hard path that of following Marchionne and grasping the essence and the features of his revolution, so numerous have been the changes in these last years. But for sure these key aspects cannot be omitted from a possible analysis:
- Change in culture and emotional involvement: the first thing the CEO realized when arriving in FIAT was the urgent need of changing unwritten rules and bad practices that were sinking the company creating vicious circles of inefficiency and unsatisfactory performances. It was first of all a matter of culture: FIAT had to see the future as an opportunity, change had to be seen as a need and the challenge of newness had to be embraced. At the same time Marchionne nurtured the national pride and the dignity of being FIAT, which were buried under years of inefficiency and passive acceptance of decline, and introduced a culture of transparency and honesty.
- Focus on core competences: while maintaining a strict control over the many different businesses in which FIAT was involved, Marchionne made sense out of that mass: the company was to be considered first of all a car producer and in producing cars strive for excellence. As he took control of the car division, becoming at the same time Chief Executive Officer of Fiat SpA and of Fiat Group Automobiles, he installed a new breed of young managers and gave his new team both clear targets and the support needed to hit them.
- Design, innovation and creativity: Italians are worldwide known for their sharp creativity and strong tradition in fine arts. Despite this fact, before 2004 the models produced by FIAT, such as Stilo and Multipla, showed very little design expertise. As an automotive newspaper puts it “Marchionne focused on making cars that people would want to be seen driving”. In order to do so, a general restructuring of the whole design process was to be done. Fiat Group Automobiles’ new Style Centre was inaugurated in July 2007. The Centre put all the research and design activities of the Fiat, Lancia, Fiat Professional, Abarth and Maserati brands into one Style department. An industrial building within the Mirafiori complex called “Officina 83”, which had served originally as a machine shop, was refurbished to provide headquarters for the new Centre. The workforce numbered about 200 people, aged 37 on average, with professional skills ranging over the entire styling process: designers, ‘digitisers’ and model makers. The rooms inside the Centre have been designed in a very modern key so as to best serve the creative aspect of activities linked to the definition of car design (Fiat website).
- Brand and marketing: In order to give a clear signal to the market the company underwent a rebranding process: the outcome was a brand that connected the ideas of Fiat old tradition and the aspects of modernity and innovation. The strategy significantly changed also for what regarded the marketing: new intensively emotional ads appeared on TVs usually accompanied by Italian popular hits and in newspapers that awakened the concept of Italian pride and conveyed a message of beauty and modernity associated with the products. Emblematic in this sense have been the ads for the new Punto and Bravo and more recently for the 500 model, whose successes are well beyond any previous estimation. Moreover he provided a clear identity to all the different brands, such as Lancia, Alfa Romeo and Maserati.
- Efficiency and financial excellence: as we said before the financial position of Fiat was very close to default. Marchionne first step was that of making the company more supple by concluding the partnership with GM and gaining 2 billion $ of cash. On the efficiency side, engineers were told to cut out duplication in car parts that could easily be shared across the whole range and of the today 18 different platform of product development Fiat is planning to move to just 6 within 2012. At the same time he slimmed Fiat's corpulent administration to a size more suited to its modest output. Finally efficiency was achieved in the design process as well, by using virtual engineering instead of costing and time consuming prototypes. Fiat Bravo was developed in just 18 months and Fiat 500 in 19 months while before it usually took from 24 to 36 months.
- Simplification and market instead of hierarchy: in his first 60 days at FIAT the CEO fired about 30% of the company’s top management, simplifying many of the internal practices and fighting against useless bureaucracy. As Davide Perrat, manager in the business development department told us, “that contrasted with the usual practice of closing plants and firing workers and was a significant contribution in making the pyramid flat, where merit and not age became the discriminator of career possibilities”. A young team of talented managers rapidly rose to senior executives roles. Marchionne himself embodied the concept of this cultural change: instead of ties and shirts, a must in Italian business environment, he usually wears a common pullover or T-shirt, posing himself as a signal that it is not appearance that makes value but the results. All managers are valued according to customers general satisfaction so that if one sector works bad everybody is responsible.
- Alliances, JVs and co-opetition: once financial stability was reached and business volumes had achieved a critical mass, Marchionne started to go out in the global market. This time, anyway, many things had changed: Fiat was not anymore looking for merciful partners to share their inefficiencies with, but for opportunities and new markets to be exploited. Many joint ventures and strategic alliances were established especially in emerging markets and previous agreement were reinforced (such as Tata in India, Nanjing in China, Tofas in Turkey, Severstal in Russia, Mekong in Vietnam, PIDF in Iran and Zastava in Serbia). The new logic was that of cooperating with competitors, in a word “co-opetition”.
- Overachievement and optimism: ambitious financial goals were set and usually met without any fail. But this was not enough: budget goals were considered the threshold of sufficiency but as Fabrizio Curci, a FIAT manager, recently declared “ if your goal is that of doing 100, managers typically produces 120-130”. Competition among managers substituted the long established inefficiencies and all of this encouraged more and more their creativity and willingness of running reasonable risks.
While Icarus is quickly approximating the Sun, his wings are stronger than ever. What was previously a depressed company, came to be a textbook example of well organized and profit creating corporate in less than 4 years. Probably the most impressive indicator of how powerful this turnaround has been can be stock price: from a 5-6 € per share in 2004 it is in these recent months stable at a value of 15 €. Fiat’s net financial position which was in 2004 -1773 millions of € is today +355 mln €. In this same period the total volume of sales has increased by 24 % (from 47 billion € to 58,5 billions) and total profits of the group are today near 2 billion €. The turnaround has quickly and successfully concluded without undergoing painful decisions and apparently only considering and using internal resources and capabilities.
