Following the release of Mazda's first ever integrated report in 2022, Mr. Masahiro Moro, Director & Senior Managing Executive Officer, explains the company's future strategy
In 2022, Mazda released its first integrated report, unveiling the company’s value creation strategy, mid-term management plan and ESG initiatives. What were the key motivations/purposes for the issuance of the integrated report?
In the past, we issued separated reports covering topics such as finance, sustainability and annual performance, but we had yet to create an integrated report that would give a holistic picture of the company. Historically, Mazda was mainly focused on publishing financial figures. But in today’s modern world, stakeholders observe the overall performance of the company, and that is not limited to just finance.
Non-financial information disclosure is of high interest to various stakeholders, including our most important stakeholders, namely our employees. From that perspective, Mazda was not good at communicating its strategies. While we always published outcomes, we did not communicate how we created these outcomes. When I came back from the US one and a half years ago, I realized that we did not have proper information disclosure for those stakeholders.
As soon as I came back, I started working on establishing a new division called the Corporate Communication Division. This new division is large in size and incorporates several teams, including government affairs, PR, ESG, and part of the brand communication team. We set up an entire corporate communication function at Mazda.
Because of accelerating requests from many stakeholders about ESG based upon SDG’s, I decided that it was a good time for us to, for the first time, release an integrated report. I believe that communicating a company’s SDG and ESG agenda is increasingly important to the eyes of the public and of the employees. For example, in the past, profit was a critical indicator. But looking at the future, new indicators, such as CO2 emissions, will play an increasingly important role.
While environmental footprint is not a financial target, it is a critical indicator to measure company performance. We wanted to put together and show the entire Mazda picture, and most importantly, Mazda’s value creation story. This is one of the highlights of our integrated report as we has never disclosed it in the past in the form of a one page summary.
Why was 2022 an appropriate timing to release Mazda’s first integrated report?
We decided that 2022 was an appropriate year for two reasons. First, as I said, I came back and led these initiatives in 2022, and secondly, we planned to announce our midterm plan update in the 2030 management policy.
This is an important milestone as we never disclosed our direction from such a long term perspective. We believe that showing what Mazda envisions for 2030 to be of critical importance. The two timings came together, and we decided to issue the first integrated report last fall.
Mazda’s value creation process seeks to “create moving experiences” through “Human-Centered” “Engineering and Manufacturing,” as well as the creation of “Human Connections.” As the driving experience becomes increasingly automated and digitalized, why did Mazda choose to adopt this “human-centric” approach?
Well, let me start off with our heritage. Mazda was born in Hiroshima in 1920 and has existed for 103 years. Our company’s history reflects the history of Hiroshima, and that experience strongly influenced our DNA, particularly the unique history around World War Two. Hiroshima suffered significant devastation by the war but the city was rebuilt by the relentless efforts of Hiroshima’s people. Interestingly, Mazda’s campus was central to that reconstruction effort.
The Mazda campus was protected by a small mountain. The townhall of Hiroshima, together with other important public buildings, were centralized at our campus, which became the starting point for rebuilding the city. Everybody worked hard, supporting each other. Mazda was a part of that.
Eventually the town was restored, and the smiles came back to people’s faces. Hiroshima’s goal is to become a peace-seeking city, and this is very much centered in our DNA. Never stop challenges, is one. Co-creation with others is another.
Mazda’s approach is always human-centered. No matter what we do, be it manufacturing, R&D, sales or distribution, we always prioritize the human aspect of each element of business. This a way of life for Mazda. If you work at Mazda for more than 30 years, you naturally become a Mazda person… and a big fan of the Hiroshima Toyo Carp (Hiroshima’s baseball team)!
To give you a practical example of this human-centric approach. If you drive our roadster, you will notice that the vehicle is designed so that the driver is positioned at the center of the vehicle, generating joy and pleasure. In essence, our cars are designed to provide emotions and joy.
Mazda is not a mobility company. We are small in scale, so we have a laser beam focus on providing emotional values to customers. In Japanese, we call that brand essence hashiru-yorokobi, and it refers in this case to the pleasure of driving.
For us, it is critical that people enjoy their driving environment. When you are behind the wheel, your heart should beat faster. Owning a car, driving a car and experiencing movement, are all about human feelings. As they develop new technologies, our engineers consider how customers will feel.
We adopt the same mindset when developing advanced safety technologies. We do not intend to have people give up on driving and just use their cars to have a coffee or read a book. Mazda is simply not that brand. Rather, our goal is to provide safety environments and assisting systems so that drivers and passengers enjoy the process of moving from A to B.
While our manufacturing processes are advanced in terms of DX, people still play a key role. We have a plant that produces five different models according to customers’ orders, including the Miata and the CX-5. Our engineers are well trained and develop different types of vehicles on the same line.
At Mazda, we value the workers at the plant. Our workers produce vehicles with their hands; they checking the product with their hands; they grind the components with their hand. Our manufacturing is about precision craftsmanship, and this is a value for our customers.
On the sales side, new technologies have also led to a trend toward direct sales. . But we still believe that securing human to human interactions is paramount. While brands can use DX to provide better convenience for the customers, we should not forget that cars are an expensive item and an important part of people’s lives. Because of this, we believe that the sales process should create a human-centric experience.
Secondly, safety always comes first, so we want to make sure that customers have a good life with Mazda.
This is why in the US, for example, I introduced a new brand value management strategy to our dealership network. I asked our dealers to invest in facilities and people so that we could provide excellent customer experience. We rely on dealers to be brand ambassadors in the local community. As such, I want them to be local heroes in their community.
If you compare today’s Mazda to the Mazda of five to 10 years ago, what values does the company have that it did not in the past?
There are a lot of updated values. For example, advanced safety, connectivity, electrified powertrains, better fuel economy - those are new values for our customers but those values are known. Many brands are providing those values with new technologies.
Why consumers choose Mazda is a different question. Our core brand essence is driving pleasure or fun to drive. This philosophy means that consumers must create more emotional ties with the brand. How we deepen those ties is our focus right now. I want to provide a more profound driving experience.
What I am trying to say is that the brand is similar to one’s personality: it has to grow. While your DNA won't change between the moment you are born to the moment you die, your behavior, opinions and outfits will change according to how you evolve and express yourself.
The joy of driving should be a part of the joy of life. This evolution is critical to give a better reason for customers to stay with Mazda or to choose Mazda.
We are currently conducting biological research about human emotions. We study the mechanisms of human cells and of the human brain in an effort to better understand what certain feelings and emotions mean. From the results of this research, we then tweak our engineering and design to provide more emotion.
For example, normal acceleration theory argues that linear acceleration is best. In other words, if one was to draw the ‘best way’ to accelerate, the acceleration would occur in a straight and steady line. However,
our research found that the way the human brain and body detects and adapts to G-force is not linear at all, rather, it is curved. If you had to draw it, it would look like a bell-shaped curve. Knowing this information allows us to tweak the way our cars and engines are designed.
We are currently trying to create cars in which drivers and passengers will not get car sickness. To explain why car sickness occurs: usually, your eyeballs move up and down when you walk because your head is going up and down. You do not realize that your eyes go up and down because your brain is constantly adjusting.
While the human body is good at adjusting to ups and downs, it is not good at adjusting to side movement. So if your eyeballs move from left to right, you will get sick.
Thanks to our research, we mathematically understand the range in which you can accommodate for that lateral movement comfortably and the range where you start becoming uncomfortable. This relates to how you control the car’s movement.
While the car moves according to the input from the road, your head does not move. This is an interesting point, because everybody is trying to absorb vertical movement via the suspension and tires, but unfortunately, you cannot do that with lateral movements. Your eye point moves up and down, and left to right. How you can manage this eye-point is critical.
In recent years, Mazda made deep changes to its US operations. This included a restructuring of its North American sales network by partnering with selected dealers, as well as launching the Essential Car Care program. Why was it important to restructure Mazda’s North American sales network? And what results has Mazda already obtained?
Mazda released its brand value management strategy and philosophy in early 2013. We started our global brand strategy in 2000. While we made great progress in Japan over the first ten years, we were not as successful in all markets.
The US is our most important market in terms of size and profit. For years, our US operation continued to discount its operations and products based on a temptation to grow the sales volume.
Around 2014-2015, we believed that we needed a change in our US business. For 20 years, Mazda was unable to achieve a 2% market share. We had to analyze why we were not able to cross that glass ceiling despite selling cars at a significant discount.
We decided to take a vote to change the CEO, and the global president asked me to go to the US. I went there in January 2016. At the time, we had 635 dealer outlets, down from 940 in 1994. I was quite surprised because over 50% of the outlets were not exclusive, and it seemed to me that our dealers did not invest in Mazda as they should have.
While most dealers invested in Mazda upon management requests, they did not do so proactively. Overall, I had the feeling that there was no real brand strategy. I would ask dealers if they would invest, and they would raise their hands, and I would ask them to invest and put some money in to help.
Half of our dealer network was selling two or three different brands per store, so they never engaged with Mazda’s branding. That meant we never had a grip on the operation. The US is a unique market with strong franchise laws that favor retailers rather than manufacturers.
This makes the US a significant challenge, particularly in good times. During crises like a chapter 11 or the Lehman crisis, you can survive with that strategy, but during good times when competition is fierce, having a solid dealer network is crucial for success.
Several friends gave me a call when I landed in the states, saying, “I like Mazda cars, but I don't want to recommend it to friends and family because your dealer treats customers badly.” Again, the human experience matters.
To create a better purchasing and brand experience, we had to change the contact point between the customers and the brand, so I knew that our dealer network needed to evolve.
To do that, our partners needed to understand the brand and needed to behave properly, according to our plans. We did not invest massively into education or new networks, rather, we made our brand value management the key philosophy for all our dealers.
Three days after landing in the US, we called a Dealer Council. I stood up in front of them and explained our brand value management strategy. I could hear our dealers saying: “ who is this Japanese guy? And what is he talking about?” Fast forward five years later to October 2022, I was invited to a national meeting of Mazda’s dealers where we celebrated the success we enjoyed since the change occurred.
In 2021, Mazda was ranked as the number one brand by Consumer Reports. In JD Power’s CSR ranking, Mazda is in the top three. We were at the bottom of those rankings in the past, so that was a significant turnaround as far as our new brand dealers were concerned. They didn't make money in the past, with an average of 2.4% return on sales in the US. Today, good dealers are making over 4%.
I needed to ask them to reinvent themselves as Mazda again. To be honest with you, I did not have any other cards but to make them believe in our brand value management, which was not an easy job.
Dealers were fed up with the manufacturer beating them up with sales requests and targets because good dealers are always thinking about the community, customers and employees. We had quite a few of those with whom we started talking about a pilot project. They invested and began spearing the word. That was a five-year story.
Today, we have 368 dealers signed up, with more than 260 already up and running as of the end of December 2022. Over 90% of Mazda sales are now through branded dealer outlets. Mazda’s brand image has been totally changed, and per unit sales are the highest ever on record.
Can you tell us more about the Essential Car Care program? How does it embody Mazda’s commitment to the creation of ‘human-centered’ experiences?
In the spring of 2020, COVID-19 hit. Soon after, the pandemic spread in New York with disastrous consequences. 2020 was the 100-year anniversary of Mazda, the centennial year, and we planned a lot of events to celebrate together with customers and dealers. Needless to say that we had to cancel everything.
Along with the centenary events, our team developed a book retracing the 100 years of Mazda, so we had the time to really understand our history and heritage once again. As I said in the beginning, Mazda has always grown with the Hiroshima community and its people.
Looking at what's happening right now in front of us, in the US, I strongly felt, “Are we corporate citizens in the US or not?” If yes, we have to do something to help the people who are significantly suffering right now, because this is the more natural feeling and response.
At the time, President Trump asked GM and Ford to produce ventilators, masks, and gowns. We didn't have manufacturing plant in the US, so we could not do that. We did it in Mexico and Japan, yes, but in the US, we could not. So, were we to do nothing, or what?
One dealer in Florida told me that the healthcare workers were incredible, sacrificing their private lives to help people, staying in hotels, apart from their families, working almost 20 hour days to help those suffering.
I wanted to do something for them. With their schedule, they had no time to wash their cars or to change their vehicle’s oil. So, I thought that Mazda could do something for them. We decided to offer free oil changes and deep cleaning of healthcare workers’ vehicles, regardless of the brand they drove, free of charge.
I asked our dealers if they could join the project as it could be a little dangerous because those people could be a source of COVID infection, but over 90% of dealers said, “Yes, we're going to do it”. We offered that to healthcare workers in each community of dealers, and in 60 days, 55,000 people came to our dealerships to receive that service.
Two thirds of them were not Mazda brand owners. We did what we could do to help the local communities in which we operate. Our dealers were so proud of providing that service to their community.
Furthermore, the Essential Car Care program had an unforeseen positive impact on employment. Because of the loss of sales during the pandemic, many dealers considering letting go of technicians. However, because customers showed up of for the Car Care program, dealers kept those service technicians in the family.
Since this was so impactful, we asked to continue it, and the following year, we extended the offer to educators. This may seem a little weird and you may ask “Why is Mazda doing this?”. If suffering people are in front of you, you lend a hand to help. That was the 2020 centenary year.
In its integrated report, Mazda unveiled an ambitious ESG strategy and sustainability initiative that centres around the three key themes of “earth,” “people,” and “society.” Regarding ‘People,’ what strategies will Mazda implement to increase job satisfaction, social inclusion and mental wellness?
This might not answer your question directly, but let me tell you my thoughts. Diversified work styles and better pay are a critical part of our HR policy. I’d like everybody to work for Mazda with happiness. That is important.
In France the pension discussion is heating up with protests every weekend. In the US, there is no retirement age, but in Japan there is a clear retirement age of 60, which recently became 65. At Mazda, we decided to extend it to 65 with better pay. That is one tangible change we made, which is more or less an HR policy.
Furthermore, Mazda is located in Hiroshima, which is 500 miles away from Tokyo, the economic heart of Japan. While Hiroshima is a beautiful rural town, there is no strong reason to relocate to Hiroshima unless you’re a big fan of Hiroshima’s Baseball Team! So we are at a little bit at a disadvantage in comparison to Tokyo-based companies when it comes to human resources.
If we get new hires at Mazda, how can you make them perform at the level of 100 to 120%? The most important point is to understand the status of employees. Are they engaged or not engaged? Do they have a problem or not? Where’s the problem? To identify these questions, we conduct a global engagement survey for all employees annually.
In this survey, employees have to answer a series of questions. We worked with Hiroshima university to analyze the interrelation of those answers with root cause analysis. We identified the issues and the most concerning points that hindered the development of employees.
Generally speaking, we found out that employees working for Mazda were more interested in the brand’s value than in their pay level. Compared to other Japanese companies, our employees are more interested in Mazda’s brand value, which is a pretty interesting point. Their loyalty and feeling of belonging to a community is one of our employee’s top sources of motivation.
When I was in the US, I recognized that younger generations greatly value the social contribution of companies. Their identity and ideology must fit with the company policy and purpose. For many people, this is becoming a bigger issue than benefits and pay.
When I came back to Hiroshima, people were working like hell. Because of the major changes occurring in the automotive industry, such as electrification, ADAS, CO2 reduction, global warming… people felt confused about the direction the company should take. What should we offer? My reply was to put our hearts on the table and to articulate Mazda’s brand purpose, DNA, values and promise.
In advanced economies such as Japan, the amount of accidents caused by elderly drivers is sharply increasing. How is Mazda addressing this problem?
All automakers are investing in advanced safety features. Despite this common effort, how those features are used is a great point of differentiation. In the case of Mazda, we are trying to understand people's brains in relation to physical movement. Rather than automate, we want to track and understand why drivers behave normally or deviate from the norm. With this, we can give a warning beforehand to try and prevent mis-operation.
Accidents caused by elderly drivers are more likely to be serious accidents. To address the issue, the Japanese government is encouraging people to return their licenses. From our point of view, taking away people’s ability to move should not be the only solution. As you move around an area, you stay in touch with people socially, which gives you pleasure and creates a brain stimulus that keeps your body and mind younger.
Therefore, our objective is to provide a system and a solution that can supplement the declining ability of older drivers while allowing them to maintain a high quality of life by remaining mobile.
If we can make a contribution to a better quality of life for those customers, it leads to making those families happy for a longer time, whilst contributing to reducing the significant cost in social security at the same time.
By 2030, Mazda aims to reduce corporate well-to-wheel CO2 emissions to 50% compared to 2010 levels. By 2050, the company aims to be fully carbon-neutral. To achieve this goal, Mazda must not only invest in the development of new models such as EVs and hybrids, but it must also re-think it manufacturing processes and product lifecycle. What main environmental initiatives are you proposing to meet these ambitious targets?
To be honest, there are so many initiatives that we could conduct another interview just to discuss our environmental strategy! One key factor to consider however is that carbon neutrality cannot be achieved by a single company operating alone. As such, interaction with stakeholders, governments, citizens and other companies is necessary.
One of our main targets is to reach carbon neutrality for our main plant by 2035. We already know that over 70% of CO2 emissions are discharged from factories. Mazda uses thermal power plants to power its plants..
Converting our thermal plant into a carbon neutral operation by 2035 is a key challenge for us. The first change will be to switch our usage of oil and coal to ammonia and carbon-neutral fuel.
Secondly, we must reduce the CO2 emissions of our logistics network. We partnered with Euglena, a biofuel maker, to expand the use of biofuels including to make the trucks that bring Mazda cars to customers environmentally friendly. We also use sustainable fuel for our company cars in Hiroshima and are considering the use of sustainable fuel to the partner companies that bring Mazda cars to dealers.
Thirdly, we have made large investments in renewable and clean energy. We are partnering with five prefectural governments, including Hiroshima, Yamaguchi, Tottori, together with the Chugoku electric company and several other companies to set up a committee for energy transformation and are preparing a system that can be deployed horizontally.
The upcoming G7 summit also represents an interesting opportunity to promote carbon neutral fuel. Today, many people argue that electric vehicles (EVs) is the only solution. However, the introduction of new EVs does not solve the problem of lowering the carbon emissions of cars already in circulation. While the share of EVs keeps increasing, most cars currently running around the world consume fuel. As such, the promotion of sustainable fuels offers an opportunity to lower CO2 emissions without having to wait for the full scale adoption of EVs.
Once you discharge CO2, it stays for more than 100 years in the air, so should we wait for 10 or 15 years for the electric era? or should we deal with the vehicles already in circulation?
Having first joined the company in 1983, Mr. Masahiro Moro is today the Director and Senior Managing Officer in charge of corporate communication and sustainability. As someone that has been working at Mazda for 40 years, what positive changes have you witnessed in the company?
Over its century of existence, Mazda has experience various ups and downs. To some extent, I believe that this was caused by a management philosophy that prioritized scale. In 2013, we took the decision to prioritize brand value management over ambition.
The reason why I am so excited about this change is because a brand is a non-tangible asset, which means that there is no limit to the brand value. A great example of this is Tesla. Today, Tesla sells around 1,000,000 units, which is just 10% the volume of Toyota. Despite this scale, the value of the company is through the roof. Although Mazda is small in scale, I want to give our employees dreams and opportunities by prioritizing brand management and brand value.