Nissan Case Study
?BACKGROUND The Global Leadership of Carlos Ghosn at Nissan During March 1999, Brazilian Carlos Ghosn took over as the first non-Japanese Chief Operating Officer of Nissan, when Nissan had been incurring losses for seven of the prior eight years. Many of the industry analysts expected a culture clash between the French leadership style and his new Japanese employees. Analysts said, because the financial situation at Nissan had become critical so the decision to bring Ghosn in came at the worst possible time.
The continuing losses were resulting in debts (approximately $22 billion) that were shaking the confidence of suppliers and financiers alike. Furthermore, the Nissan brand was weakening in the minds of consumers due to a product portfolio that consisted of models far older than competitors. In fact, only four of the company’s 43 models turned a profit. With little liquid capital available for new product development, there was no indication that Nissan would see increases in either margin or volume of sales to overcome the losses. Some of the issues Carlos Ghosn faced are Consensus Decision-Making and its Relationship to Career Advancement
Addressing Corporate Culture Issues Carlos Ghosn’s Philosophies of Management The First Months in Japan and the Cross-Functional Teams Reforms in Full Swing Reducing Redundancies Keiretsu Partnerships Reorganization Performance Evaluations and Employee Advancement The next leader of Nissan was either going to turn Nissan around within two to three years, or the company faced the prospect of going out of business. Understanding the immediacy of the task at hand, Ghosn boldly pledged to step down if Nissan did not show a profit by March 2001, just two years after he assumed duties.
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But within eighteen months Nissan began to operate profitably under his leadership. Background of Carlos Ghosn Carlos Ghosn was borned in Brazil in 1954 to French and Brazilian parents, both of Lebanese heritages; he received his university education in Paris. After graduation at age 24, Ghosn joined the French firm, Compagnie Generale des Etablissements Michelin. After a few years of rapid development to become Brazilian subsidiary, he learned to manage large operations under difficult conditions such as the runaway inflation rates in Brazil at that time.
Similarly, as the head of Michelin North America, Ghosn faced the pressures of a recession while putting together a merger with Uniroyal Goodrich. Because Michelin was a family-run company, regardless of his successes in his 18 years with Michelin, Ghosn realized that he would never be promoted to company president. Therefore, in 1996 he decided to resign and join Renault S. A. , accepting a position as the Executive Vice President of Advanced Research & Development, Manufacturing, and Purchasing. Ghosn led the turnaround initiative at Renault in the aftermath of its failed merger with Volvo.
Because he was so focused on increasing margins by improving cost efficiencies, he earned the nickname “Le Cost-Killer” among Renault ‘s top brass and middle management personnel. Three years later, when Renault formed a strategic alliance with Nissan, Ghosn was asked to take over the role of Nissan COO in order to turn the company around in a hurry, just as he had done earlier in his career with Michelin South America. To Carlos Ghosn this would be the fourth continent he would work on, which combined with the five languages he spoke, shows his capacity for global leadership. Background of Nissan
A company called Jidosha-Seizo Kabushiki-Kaisha (which means “Automobile Manufacturing Co. , Ltd. ” in English) was established in 1933, in Japan. It was a blend of several earlier automotive ventures and the Datsun brand which it acquired from Tobata Casting Co. , Ltd. Shortly after that in 1934, the company name was changed to Nissan Motor Co. , Ltd. After the Second World War, Nissan grew steadily, expanding its operations globally. It became especially successful in North America with a lineup of smaller gasoline efficient cars and small pickup trucks as well as a sports coupe, the Datsun 280Z.
Along with other Japanese manufacturers, Nissan was successfully competing on quality, reliability and fuel efficiency. By 1991, Nissan was operating very profitably, producing four of the top ten cars in the world. Nissan management throughout the 1990s, however, had displayed a tendency to emphasize short term market share growth, rather than profitability or long-term strategic success. Nissan was very well known for its advanced engineering and technology, plant productivity, and quality management.
During the previous decade, Nissan’s designs had not reflected customer opinion because they assumed that most customers preferred to buy good quality cars rather than stylish, innovative cars. Instead of reinvesting in new product designs as other competitors did, Nissan managers seemed content to continue to harvest the success of proven designs. They tended to put retained earnings into equity of other companies, often suppliers, and into real-estate investments, as part of the Japanese business custom of keiretsu investing.
Through these equity stakes in other companies, Ghosn’s predecessors (and Japanese business leaders in general) believed that loyalty and cooperation were fostered between members of the value chain within their keiretsu. By 1999, Nissan had tied up over $4 billion in the stock shares of hundreds of different companies as part of this keiretsu philosophy. These investments, however, were not reflected in Nissan’s purchasing costs, which remained between 20-25% higher than Renault’s. These keiretsu investments ould not have been so catastrophic if the Asian financial crisis had not resulted in a devaluation of the yen from 100 to 90 yen = 1 US dollar. As a result, both Moody’s and Standard & Poor’s announced in February 1999, that if Nissan could not get any financial support from another automobile company, then each of them would lower Nissan’s credit rating to “junk” status from “investment grade”. Clearly, Nissan was in need of a strategic partner that could lend both financing and new management ideas to foster a turnaround. In addition, Nissan sought to expand into other regions where it had less presence.
In March 1999, Nissan President and Chief Executive Officer Yoshikazu Hanawa found such an alliance opportunity with Renault, which assumed a 36. 8% stake in Nissan, allowing Nissan to invest $5. 4 billion and retain its investment grade status. Hanawa was also able to get Renault’s top management to agree to three important principles during negotiations. The three important principles a. Nissan would maintain its company name b. The Nissan CEO would continue to be selected by the Nissan Board of Directors c. Nissan would take the principal responsibility of implementing a revival plan.
Hanawa made the request to Louis Schweitzer, CEO of Renault, to send Carlos Ghosn to Nissan to be in charge of all internal administration and operations activities. Why would Renault agree to all of these conditions in this bailout of Nissan? Renault was also looking for a partner, one that would reduce its dependence on the European market and enhance its global position. In 1997 85% of Renault’s revenue was earned in Europe, 32. 8% of which came from its domestic (French) market. Renault also had high market share in Latin America, especially Brazil.
On the other hand, Nissan has the second largest market share in Japan and a strong market share in North America (see Appendix 2, Nissan’ market share). Nissan lacked, however, market share and distribution facilities in Latin America. By creating the new alliance, Nissan and Renault expected to balance their market portfolios and become more competitive. Renault wanted a partner that was savvy and established in the North American and Asian markets. Furthermore, the merger of Daimler and Chrysler in May 1998 gave Renault a sense of urgency about finding a partner to compete more effectively on a global scale.
So Carlos Ghosn was designated to join Nissan as COO because Renault and Nissan agreed to a Global Alliance Agreement on March 27, 1999 with him. Addressing National Culture Issues After going to Japan, Ghosn knew that industry analysts were reasonable in doubting whether a non- Japanese COO could overcome Japanese cultural obstacles, as well as effectively transform a bureaucratic corporate culture. In order to transform the company back into a successful one, Ghosn was going to have to address several Japanese cultural norms The following are some of the issues he faced.
Consensus Decision-Making and its Relationship to Career Advancement Since the war, the Japanese business culture for decades had been producing leaders who were very good at reaching consensus and working cooperatively within a department (a derivative of the mura-shakai consensus based society system). Thus, the conventional wisdom in Japan was that conscientiousness and cooperation were the key elements to maintaining operational efficiency and group harmony. This paradigm often resulted in delays to the decision making process in an effort to achieve consensus.
As an unintended consequence of the emphasis on conscientiousness, Japanese professionals tended to avoid making mistakes at all costs in order to protect their career growth. This can result in frequent informal informational meetings and coalitions (called nemawashi) that occur between professional departments prior to a decision-making meeting. Through these informal contacts, participants try to poll the opinions of other participants beforehand in order to test which positions have the strongest support so that their position is aligned with the position most likely to be influential.
Then, at the time for a meeting with their superiors, participants tender their aligned positions one by one to the ultimate decision maker with the feeling that if the decision maker agrees to the consensus, then no one individual can be identified later for originating a faulty position if that decision results in failure. Rules and conformity replace process. In Japan, age, education level, and number of years of service to an organization are key factors determining how an employee moves up the career ladder.
Due to a cultural tenet called Nennkou- Jyoretu, placing power in the hands of the most knowledgeable and experienced, promotions are normally based on seniority and education. In practice, the only things that usually thwart these time- and education-based promotions are performance errors that reflect poorly on the team and any behavior that causes disharmony among team members. When something goes wrong, the most senior person accepts responsibility while accountability at lower levels is diffused. This part of Japanese culture had been useful to reinforce control over operations and enhance quality and productivity.
During the postwar period of the company’s growth, it contributed to great working relationships among everyday team members at Nissan, but these norms, by the mid 1990s, were actually impeding the company’s decision making. Specifically, these cultural norms severely hampered risk-taking and slowed decision making at all levels. Existing teams of employees routinely spent much time on concepts and details, without much sense of urgency for taking new action, due in part to the risks involved with actions that could result in failure.
This mindset contributed to a certain degree of complacency with market position and internal systems at Nissan, undermining the company’s competitiveness. In a related cultural issue, as employees became increasingly aware that Nissan was not performing well, the Japanese culture of protecting career advancement led to finger pointing rather than acceptance of responsibility. Sales managers blamed product planning. Product planning blamed engineering. Engineering blamed manufacturing and so on.
When Ghosn first arrived in Japan, he was surprised to learn that, while most of the employees sensed that there was indeed a problem within the company, they nearly always believed that their respective departments were operating optimally. The consensus was that other departments and other employees were creating the company’s problems. Ghosn also learned that many of the employees of the company did not have a sense of crisis about the possibility of bankruptcy at Nissan because of the Japanese business tradition, which implied that large troubled employers would always be bailed out by the government of Japan.
This view was based on the long standing partnership between the government and the major businesses to ensure employment and expand exports to world markets. The businesses for their part were committed to providing lifetime employment to their workers. Addressing Corporate Culture Issues Not only were there Japanese cultural norms for Ghosn to contend with, but there were procedural norms at Nissan, both formal and informal, which were holding the company back. First, once decisions were made at Nissan, the follow-up during implementation was often not effective. This was not usually the case in other Japanese companies.
Second, top management had developed tunnel vision regarding its strategic focus on regaining market share, as opposed to restoring margin per unit sold. This was in part due to a focus on what was best for maintaining the company’s size and its employees, i. e. more units to produce, rather than what was best for customers (newer, better products to meet market demands) or for investors (higher earnings and higher stock value). Additionally, in an unusual break from Japanese business culture, there were communication problems between the layers of the organization.
Staffs seemed relatively uninformed of key corporate business decisions, while top management seemed out of touch with what policy execution issues were present at the middle and lower management levels. Ghosn realized that Nissan’s fundamental problem was the lack of vision from management and the persistent problem of ignoring the voice of Nissan’s customers. Ghosn identified the following problems at Nissan 1. Lack of a clear profit orientation 2. Insufficient focus on customers and too much focus on competitors 3. Lack of a sense of urgency 4. No shared vision or common long term plan . Lack of cross-functional, cross-border, cross-cultural lines of work. Carlos Ghosn’s Philosophies of Management Despite all of his doubters, Ghosn embraced the cultural differences between the Japanese and himself, believing fervently that cultural conflict, if paced and channeled correctly, could provide opportunity for rapid innovation. He felt that by accepting and building on strengths of the different cultures, all employees, including Ghosn himself, would be given a chance to grow personally through the consideration of different perspectives.
The key, he reiterated many times, was that no one leader should try to impose his/her culture on another person who was not ready to try the culture with an open mind and heart. In this vein, Carlos Ghosn came to Japan knowing that if he were to start imposing reforms by using the authority of his company position, rather than work through the Japanese culture, then the turnaround he sought would likely backfire. What he did bring with him was three overriding principles of management that transcended all cultures.
And he used these as a backdrop to give employees structure as to their efforts of determining the proper reforms. These three principles are as follows: 1. Transparency—an organization can only be effective if followers believe that what the leaders think, say, and do are all the same thing. 2. Execution is 95% of the job. Strategy is only 5%—organizational prosperity is tied directly to measurably improving quality, costs, and customer satisfaction. 3. Communication of company direction and priorities—this is the only way to get truly unified effort and buy-in. It works even when the company is facing layoffs.
The First Months in Japan and the Cross-Functional Teams Even though Ghosn expected that his attitude toward cultural respect and opportunism wouldlead to success, Ghosn was pleasantly surprised by how quickly Nissan employees accepted and participated in the change of their management processes. In fact, he has credited all of the success in his programs and policies (described below) to the willingness of the Nissan employees at all levels to change their mindsets and embrace new ideas. Perhaps it was the way he started that set the foundation among the employees.
He was the first manager to actually walk around the entire company and meet every employee in person, shaking hands and introducing himself. In addition, Ghosn initiated long discussions with several hundred managers in order to discuss their ideas for turning Nissan around. This began to address the problems within the vertical layers of management by bringing the highest leader of the company in touch with some of the execution issues facing middle and lower management. It also sent a signal to other executives that they needed to be doing the same thing. But he did not stop there.
After these interviews, he decided that the employees were quite energetic, as shown by their recommendations and opinions. With this in mind, Ghosn opted to develop a program for transformation which relied on the Nissan people to make recommendations, instead of hiring outside consultants. He began to organize Cross-Functional Teams to make decisions for radical5 Middleton, John. ExpressExec. com,change. Part of his interest in doing this in-house was to address the motivation and horizontal communication issues that he encountered throughout the organization.
He felt that if the employees could accomplish the revival by their own hands, then confidence in the company as a whole and motivation would again flourish. In a sense he was making it clear that he was also putting his own future in their hands because he had publicly stated several times that the Nissan company had the right employees to achieve profitability again in less than two years. Before the strategic alliance occurred between Renault and Nissan, Renault had made an agreement with Hanawa to remain sensitive to Nissan’s culture at ll times, and Ghosn was intent on following through on that commitment. First and foremost, when he chose expatriates to accompany him from Renault to Nissan, he screened carefully to ensure that those expatriates would have his same cultural attitudes toward respecting Nissan and the Japanese culture. And, after completing his rounds of talking with plant employees, he chose not to use his newfound understanding of the problems to impose a revival plan. Instead, Ghosn mobilized existing Nissan managers by setting up nine Cross- Functional Teams (CFTs) of approximately 10 members each in the first month.
Through these CFTs, he was allowing the company to develop a new corporate culture from the best elements of Japan’s national culture. He knew that the CFTs would be a powerful tool for getting line managers to see beyond the functional or regional boundaries that defined their direct responsibilities. In Japan, the trouble was that employees working in functional or regional departments tend not to ask themselves as many hard questions as they should. Working together in CFTs helped managers to think in new ways and challenge existing practices.
Thus, Ghosn established the nine CFTs within one month of his arrival at Nissan. The CFT teams had responsibility for the following areas: Business Development, Purchasing, Manufacturing and Logistics, Research and Development, Sales and Marketing, General and Administrative, Finance and Cost, Phase-out of Products and Parts, Complexity Management, and Organizational Structure. Ghosn had the teams review the company’s operations for three months and come up with recommendations for returning Nissan to profitability and for uncovering opportunities for future growth.
Even though the teams had no decision making power, they reported to Nissan’s nine-member executive committee and had access to all company information. The teams consisted of around ten members who were drawn from the company’s middle management. Ten people could not cover broad issues in depth. To overcome this each CFT formed a set of sub teams. These sub-teams also consisted of ten members and focused on particular issues faced by the broad teams. CFTs used a system reporting to two supervisors. These leaders were drawn from the executive committee and ensured that the teams were given access to all the information that they needed.
To prevent a single function’s perspective from dominating, team had two senior voices that would balance each other. One of the regular members acted as a pilot who took responsibility for driving the agenda and discussion. The pilot and leaders selected the other members. The pilots usually had frontline experience as managers. The CFTs also prescribed some harsh medicine in the form of plant closures and employee reductions. The CFTs would remain an integral part of Nissan’s management structure. They continue to brief the CEO; however the team’s missions have changed somewhat.
They are to carefully watch the on-going revival plan and try to find further areas for improvement. Since the members of the teams were often mid-level managers who rarely saw beyond their own functional responsibilities, this new coordination had high impact on participants. Specifically, it allowed them to understand how the standard measures of success for their own departments were meaningless to Nissan unless they were framed in a way that connected to other departments to result in customer attraction and retention.
In many cases, these mid-level managers enjoyed learning about the business from a bird’s eye perspective and felt fully engaged in the change process, giving them a sense of responsibility and ownership about turning Nissan around. As Ghosn explained in a speech in May 2002, “The trouble is that people working in functional or regional teams tend not to ask themselves as many hard questions as they should. By contrast, working together in cross-functional team’s helps managers to think in new ways and challenge existing practices.
The teams also provide a mechanism for explaining the necessity for change and for projecting difficult messages across the entire company. ” Ghosn did have one great stroke of luck that helped him reinforce the need for change. At approximately the same time as he was arriving in Japan, Yamaichi, the major financial house in Japan, went bankrupt and was not bailed out by the Japanese government. Before that, Japanese employees, including Nissan’s, did not worry about corporate problems because the government was always saving the day. This recent turn of events helped to evelop a sense of urgency among Nissan employees. Ghosn, to his credit, used the Yamaichi example whenever he could to continue to motivate his employees, repeating that their fate would be no different if they did not put all of their effort into figuring out, and then executing, the best way to turn Nissan around. Reforms in Full Swing Within the first six months, the fruit of the CFTs and the increased sense of urgency were apparent. Management (especially Ghosn) was increasingly perceived as transparent among all levels of employees, which Ghosn attributed to his respect for protecting Nissan’s identity.
In addition, decisions were being made faster; and there was increased communication and understanding about what was important to management. There was, however, very little implementation yet, only planning. Having received from the CFTs the recommendations, which included plant closures and reduced headcount, Ghosn created and communicated what he called the Nissan Revival Plan (or NRP) in October of 1999. From that point forward he stressed implementation and follow-up, rather than planning and reexamining decisions.
Other CFTs were formed, but the bulk of his efforts lay in ensuring high-quality execution of the decisions that were laid out in the plan. Ghosn’s main focus areas included (1) Development of new automobiles and markets (2) Improvement of Nissan’s brand image (3) Reinvestment in research and development, and (4) cost reduction. Reducing Redundancies To achieve these results, the closing of five factories and the reduction of 21,000 jobs (14% of Nissan’s workforce were planned. Job cuts would occur in manufacturing, management, and the dealer network. Since Japanese business culture had tended to have lifelong employment as a principle, Ghosn endured strong criticism from the media, including being labeled as a gaijin, a foreigner. In addition, Ghosn fired several managers who did not meet targets, regardless of the circumstances. Many industry analysts cited his demotion of Vice President of Sales and Marketing in Japan, Mr. Hiroshi Moriyama, as unacceptable and reckless. They contended that falling revenues and dissipated market share were 6 Ghosn, Carlos, “Saving the Business without Losing the Company,” Harvard Business Review, Vol. 0, No. 1, January 2002. due to Nissan’s aging product line rather than to Moriyama’s performance. In addition to the media and industry analysts, the government, also expressed concern about the layoffs, but Prime Minister Keizo Obuchi responded by offering subsidies and programs to help the affected workers. Keiretsu Partnerships As one of the biggest changes of the NRP, Nissan broke away from the Japanese cultural norm of keiretsu investments. However Nissan maintained customer-supplier relationships with those former keiretsu partners.
As it turned out, Nissan regained billions in tied up capital to use for debt servicing and new product development without losing any significant pricing advantages. In fact, because Ghosn put such an emphasis on reducing purchasing costs, Nissan actually began to substantially lower its costs after the keiretsu investments were sold. Reorganization Another major component of the NRP was the restructuring of the organization toward permanent Cross-functional departments, which each serviced one product line.
As a result, the staffs gained better visibility of the entire business process and began to focus on total business success and customer satisfaction, as opposed to misleading performance goals that could be taken out of context. In addition, Ghosn also eliminated all advisor and coordinator positions that carried no responsibilities and put those personnel in positions with direct operational responsibility. Employees were disciplined much more strongly for inaccurate or poor data than misjudgment, thereby stimulating risk-taking behavior and personal ccountability. Ghosn also made it clear, however, that engineers were not to reduce product cycle times or do anything that would negatively impact product quality or reliability. He repeated this often to drive home the point that the way to restore the power of the Nissan brand was through each individual customer’s experience. For higher-level staff, Ghosn created a matrix organization to improve transparency and communication. Within this matrix, he assigned each staff member two responsibilities: functional (e. g. marketing, engineering) and regional (e. g. , domestic, North America). The result was that each staff member would have two bosses, thereby building awareness of both functional and regional issues. Ghosn also put an emphasis on cross-functional department members having very clear lines of responsibility and high standards of accountability. Every report, both oral and written, was to be 100% accurate. Ghosn is quoted as saying, “Right from the beginning, I made it clear that every number had to be thoroughly checked.
I did not accept any report that was less than totally clear and verifiable, and I expected people to personally commit to every observation or claim they made. ” Performance Evaluations and Employee Advancement Ghosn also put focus on performance by introducing a performance based incentive system. These incentives included cash incentives and stock options for achievements that could be linked directly to successful operating profits and revenue. This was a large departure from the traditional Japanese compensation system, in which managers usually received no stock options or bonuses.
Under Ghosn’s compensation system, the highest achievers got the highest rewards. And promotions were no longer limited to age, length of service, or educational level. For example, a female factory worker who had only a high school diploma was promoted to be a manufacturing manager based on her strong abilities to perform the work, relating promotion and salary increase to the ability to perform challenging or demanding tasks. The promotion of some younger leaders over older, longer-serving employees caused some problems regarding lack of cooperation.
But just as Ghosn saw cultural differences as growth opportunities, he thought these tests of authority were growth experiences for young managers. The First Three Years The NRP was achieved in March 2002; one year ahead of schedule. One success was a 20% reduction in purchasing costs. This was a result of achieving a purchase price from kereitsu suppliers that matched the prices offered by Renault’s suppliers. In addition, the supplier base shrunk by 40% and the service suppliers decreased by 60%. 11 Prior to NRP, seven plants produced automobiles based on 24 platforms.
After NRP, four plants produced automobiles based on 15 platforms. The Near Future—Implementation of Nissan 180 On May 9, 2002, Ghosn stated in a speech for an annual business review, “The Nissan Revival Plan is over. Two years after the start of its implementation, all the official commitments we took have been overachieved one full year ahead of schedule… Nissan is now ready to grow. ” He went on in the speech to set out the goals for a new plan, one he called “Nissan 180” which would focus on profitable growth.
All new goals were to be accomplished by April 1, 2005. The one in “Nissan 180” represents an additional 1,000,000 car sales for Nissan worldwide; the eight, an 8% operating profitability with no changes in accounting standards; and the zero represented zero automotive debt. In addition, the plan called for an increase of global market share from 4. 7% presently to 6. 1%, a further reduction of purchasing costs by 15%, and a significant increase in customer satisfaction and sales satisfaction ratings. In 2002, mid career hires (400) outnumbered college recruits (280).
Because hiring outside managers might create animosity among managers within Nissan, this practice reflects a sharp change in hiring decisions. Not only was Ghosn aggressively launching the Nissan 180 program to transition out of the Nissan Revival Plan program, but he was also pushing a new, customer-focused initiative called “Quality 3-3-3”. He said that this program focuses on three categories of quality: product attractiveness, product initial quality and reliability, and sales & service quality. Challenges for Ghosn and Nissan
As Ghosn contemplates the future, he knows that the transformation has really just begun. How could the momentum and the energy that his employees exhibited be maintained now that they had all reached the goals that were seemingly Herculean just over two years ago. Would there be a letdown of effort and results by Nissan employees, or would Ghosn be able to mobilize them to get to the next level of profitable growth and reestablishment of brand power and market share? He was aware that current succession plans called for him to return to Renault as its new CEO, replacing Louis Schweitzer in 2005.
Before this could happen, Ghosn would be challenged to find an adequate replacement who could take Nissan to new heights of accomplishment as planned. Could the new approaches that had been so successful become part of the Nissan culture without his continued guidance? Would the success of the NRP spoil the sense of urgency that helped reinforce the need for change allowing Nissan to slip back into old habits? How could he find someone to carry forward the need to create a sustainable pattern of customer focus and profitable growth? THEME
Nissan is world renowned company . it was a combination of several earlier automobile venture and the Datsun brand. In 1934 it was named by Nissan Motor co. ltd. 1996 Carlos Ghosn joined as COO, to illustrates his leadership globally. Ghosn faced different problems when he was in charge of Nissan. Nissan has always emphasized on short term market share growth rather than long term strategic success. There was also a culture clash between the French leadership style and the new Japanese employees. The financial situation at Nissan had become critical.
Nissan brand was weakening in the minds of consumers. It also didn’t have a HR Department that’s why it lacked in perfect strategy and management. Nissan lacked a clear profit orientation; it has insufficient focus on customers and too much focus on competitors also lack of sense of urgency. And Nissan has no share vision or common long term plan. It also lacked cross- functional, cross- border, cross structural sense of work. The fundamental problem was the lack of vision from management and the persistent problem of ignoring the voice of Nissans consumers.
Nissan’s product planning department blamed engineer and engineering blamed manufacturing so on, so there was a conflict between the departments as well. Main Issue Finding out the way to sustain the employee’s efficiency to accomplish different missions and vision whether Nissan will be able to maintain the right track properly through the substitution of its CEO, in another confront? Strengths Nissan fought back incredibly fast to shock the critics under he global leadership of Carlos Ghosn The brand Nissan was weakening in the minds of consumers due to a product portfolio that consisted of models far older than competitors.
Only four of the company’s 43 models turned a profit. The continuing losses incurred by Nissan were resulting in debts (approximately $22 billion) that were shaking the confidence of suppliers and financers. Nissan was left with very little liquid capital available for new product development. Moreover, there was no indication that Nissan would see increases in either margin or volume of sales to overcome the losses. Under the bold leadership of Carlos Ghosn, Nissan turned around fighting the $22 billion debt in just eighteen months to become profitable again.
For Ghosn this was the fourth continent he would work on, which combined with the five languages he spoke, illustrates his capacity for global leadership. Nissians advance technology Nissan was very well known for its advanced engineering and technology, plant productivity, and quality management. Nissan Motor Co Ltd used to be a globally expanding auto manufacturer well known for its advanced engineering and technology, plant productivity, and quality management. Its growth was very steady until it suffered the losses for about seven consecutive years starting resulting in a enormous debt of approximately $22 billion.
Carlos Ghosn leading Nissan cutting the costs Carlos Ghosn was very focused on increasing margins by improving cost efficiencies. He had earned the nickname “Le Cost-Killer” among Renault‘s top brass and middle management personnel because of his intense cost-efficient strategies even before joining Nissan in March 1999. A drop in non-operating expenses of Nissan, such as interest on outstanding debt due to lower net indebtedness and more efficient financial management, contributed to the steep increase in Nissan’s profit.
When Renault formed a strategic alliance with Nissan, Ghosn was asked to take over the role of Nissan COO in order to turn the company around in a hurry, just the way he had done earlier in his career with Michelin South America. Carlos Ghosn’s Philosophies of Management gave Nissan the boost it required to fight the losses in a considerably short p of time Critics had anticipated a severe cultural clash to be introduces by bringing in a Non-Japanese leader into Nissan in 1999. According to their analysis, the decision to bring Carlos Ghosn in was in the worst possible state of Nissan considering its financial crisis.
Ghosn embraced all the cultural differences between the Japanese and himself since he had the belief that cultural conflict, if correctly channeled and paced, could provide the opportunity of rapid innovation. He had expected all the employees of Nissan to grow personally through the consideration of different cultural perspective by accepting and building on strengths of the different cultures. Carlos Ghosn planted himself inside the hearts of his employees by being close to them, listening to their views to a turnaround in Nissan
Carlos Ghosn was actually the first Nissan manager to walk around the entire company and meet every employee in person, shaking hands and introducing himself. In addition, Ghosn initiated long discussions with several hundred managers in order to discuss their ideas for turning Nissan around. Ghosn had initiated nine Cross-Functional Teams (CFTs) consisting of existing Nissan managers to develop a new corporate culture in Nissan. These teams were assigned to review the business operations and to come up with recommendations for returning Nissan to profitability and uncover opportunities for future growth.
Nissans profitability When Nissan began to operate they took only few months for ghosn to stock crisis and supporters. Nessian need to turn on within two to three years or the company faced the prospect of going out of business. In this situation ghosn took the charge of Nissan . realizing the immediacy of the task at hand he took initiative to show profit by 2001. but it took only eighteen months for him to stock critics and supporters alike when Nissan began to operate profitability under his leadership. Lucrative competition regarding quality, reliability and fuel efficiency
In 1991s Nissan was successfully opposing regarding quality, reliability and fuel efficiency. They were successful in producing profitability with four top ten cars in the world. Nissan was widely reputed for its product quality, reliability and fuel-efficient engines. It had a special success in North America with its lineup of smaller gasoline efficient cars and small pick-up trucks as well as a sport coupe named 280Z under the brand name DATSUN which in fact was the predecessor of the Brand Nissan. Pact opportunity with the Renault and its investment grade status
In March 1999, Nissan got an Alliance opportunity with the Renault allowing Nissan to invest $5. 4 billion and retain its investment grade status. Nissan needs a strategic partner. Nissan president and chief executive officer Yoshikazu found an opportunity of alliance opportunity with Renault. To turn around they need such a partner form that they can take both financial and management ideas to foster an orbit. With this agreement they sake 34. 8%, allow them to invest huge amount of money. And it retains its investment grade status.
Nissan able to take huge opportunity in decision making, principal responsibility, requiting and maintain its company name. Nissan’s Informational informal meeting of decision making: In Any cost Japanese tried to avoid making mistakes in order to protect their career growth. So in Japan Nissans any informal meeting became as a wrathful informational meeting. In the time of meeting superiors participate tender their aligned position randomly . after that the decision maker or the top management feels weather the decision makes agrees to the consensus.
To protect their career growth Japanese always tried their best and its can be seen in their any informal meeting where that meeting became informational also. Willingness of the employees in surpassing of all culture and imposing new management: Clear strategy and effective communication help employees to work pleasantly and to get this they influence Ghosn to transcend culture and impose new management strategy. Nissan employees accepted and participate in the change of their management process quickly to lead success. Ghosn brought Japan three overriding principals of management that transcend all culture.
It was used as an environment to give employees structure to reform their efforts. Transparency, improving quality, cost, customer satisfaction and communication was the main work frame of the management. Nissan employees accepted and participate in the change of their management process to lead success in noticeable short time. Cross functional teams (CFTs) of Nissan Ghosn mobilized existing Nissan managers by setting up nine cross functional teams of approximately 10 members each in the first month that makes the company developing new corporate culture form the best elements.
Productive and efficient employee is a boon for any organization. Productive employees are the most wanted feature for all the organization. Work within a group in an effectively way can help manager to in new ways and challenge. So Ghosn mobilized existing Nissan managers by setting up nine cross functional teams of approximately 10 members each in the first month that makes the company developing new corporate culture form the best elements. CFTs are the powerful tool for getting line manager to see away from the functional or regional boundaries that defined their direct farm duties.
Weakness Nissan was going through a severe financial crisis by the late 1990s Cultural clash between French and Japanese’s leadership creates problem in Nissan. The continuous losses were resulting in debts. So the confidence level of the supplier and financer was shaking down. Supply change management is an important tool for any organization. And the confidence level of the supplier and the distributor depends on the company’s financial condition. If companies financial condition goes down than the confidence level also shakes.
After incurring loss for 7 consecutive years, Nissan’s financial state had become critical in 1999 considering the huge $22 billion debt that it was burdened with. This resulted in shaken confidence of the suppliers and financers of the company regarding the future of Nissan. There was little liquid capital available for new product development. As a result, no one could hope Nissan would gain increase in margin or volume of sales overcoming the losses it had already incurred. Weakened Brand image of Nissan due to the product line consisting of older models
Customer satisfaction is the core things of the company. nissan’s deigns does not reflect the opinion of the customer. They have some offensive idea that customer only prefer to buy only good quality cars rather than stylish and innovative cars. Now a day’s customer also prefers style with quality. Customer satisfaction is the core things of the company. nissan’s deigns does not reflect the opinion of the customer. They have some offensive idea that customer only prefer to buy only good quality cars rather than stylish and innovative cars.
Nissan Motor Co Ltd used to be a globally expanding auto manufacturer well known for its advanced engineering and technology, plant productivity, and quality management. Nissan now had a product portfolio consisting of older models compared to its competitors. Out of the 43 models marketed by Nissan, 39 were incurring losses. This gives us with a picture of how customers were turning away from the global automaker, Nissan. Misinterpretation of the market scenario Nissan‘s advanced engineering and technology, plant productivity, and quality management made it possible for Nissan to become a renowned automaker by the end of the 1980s.
But Nissan’s designs had not reflected customer opinion because they assumed that most customers preferred to buy good quality cars rather than stylish, innovative cars. Nissan's fortunes had begun to decline, resulting in dropped profits and sales, quelling hopes that the 1990s would be as lucrative as the 1980s. Emphasizing on short-term market share growth overlooking the prospects of profitability or long-term market growth Nissan management throughout the 1990s had displayed a tendency to emphasize short-term market share growth, rather than profitability or long-term strategic success.
When they found that they have a good market position, they became complacent. Organization often tries to put emphasizing on long term market share. they have loss or down market share in short term but over all condition may be positive in long run. So organization should concern with long term market share. Nissan management through out the 1990s however had displayed a tendency to emphasize short term market share growth rather than long term market share strategic success, Nissan was very much in need of a strategic partner to lend both financing and new management ideas to foster a turnaround.
Such a partnership would have helped Nissan to expand into other regions where it had less presence. Investing largely in equity building of other companies As a part of the Japanese business custom of “Keiretsu” investing, Nissan management tended to put its retained earnings into equity of other companies, often suppliers, and into real-estate investments. This left Nissan with inadequate liquid funding to go for research and new product development. Moreover, Nissan had incurred more cost compared to other automakers oncerning its forward and backward integration proving “Keiretsu” an ineffective approach for ventures like Nissan that are already in financial crisis. Nissan’s high purchasing costs Nissan’s purchasing costs was higher than the other competitors. In the investment of stock share thought there purchasing cost didn’t shows up but their purchasing price was higher 20%-25%than Renaults. Nissan’s management, like any other Japanese company believed that loyalty and cooperation were fostered between members of the value chain within their keiretsu.
But this integrated approach to enhance loyalty and cooperation could not help Nissan’s high purchasing cost Nissan had invested a sum of $4 billion in the stock shares of hundreds of different companies as part of this keiretsu philosophy mostly suppliers and real-estate industries. Such huge investment couldn’t bring any good to Nissan. Rather, Nissan had to purchase materials at a higher ate from the suppliers whom Nissan had helped with investment. Lack of market share and distribution channels Nissan lacked market share and distribution channels in Latin America. t was a weak player in Latin American markets Without distribution channel any company can not run their business. So distribution channel plays an important role. Nissan has the second largest market share in Japan and a strong market share in North America. But it had been a weak player in Latin American markets. Nissan had to find a strategic ally to compete in such markets. As for Nissan, the urgency of a strategic alliance was getting intense considering its increased debt. Therefore, Nissan and Renault agreed to a Global Alliance Agreement on March 27, 1999. Depending blindly on conventional wisdoms
Conventional wisdom that conscientiousness and cooperation are the key elements to maintaining operational efficiency and group harmony became a reason for delayed decision making process, as it had inconsiderably aimed at achieving consensus. Existing teams of employees spent more time on concepts and details without realizing the state of emergency Nissan was going through. This resulted in poor competitiveness. Risk-taking behavior was severely hampered by the cultural norms Japanese culture had been useful to reinforce control over operations and enhance quality and productivity.
By the mid 1990s, these norms were actually impeding the company’s decision making. Specifically, Risk-taking behavior was severely hampered at all levels. For efficient work organization need effective team member and the harmony of the members. Before war there was great working relationship between the team members. But the member of teams routinely spent much time on concept and details rather than the risk taking or the new action taking according to the urgency of the work. But the cultural norms hamper a lot in risk taking behaviors. Education and age base promotion- Nennkou Jyoretu
Education, age, number of years service based promotions usually spoil the performance that shows poorly in team and creates disharmony among team members. Performance is the best way to measure the efficiency or seniority of any employees. But in Japan age, education level and numbers or year’s service was the measurement way of efficiency and how they can move up the career leader. Consequently other employees de-motivated and they don’t get any influence to show their creativity and new works. Japanese cultural tenet called Nennkou Jyoretu placed power in the hands of the most knowledgeable nd experienced. This had resulted in a dreadful working relation between employees. Most senior person will be responsible if something goes wrong though it has accountability in lower level management. But in a crisis like 1990’s, the above mentioned problems were rather identified to have retard the pace Nissan. Finger Pointing as a defense to career advancement Japans are very conscious abut their career growth. When Nissan was not performing well then the employees became aware in their career advancement and they became and they start blaming on other instead of taking the responsibilities.
The employees of Nissan became increasingly aware of the crisis that the company was going through because of the individual departments not performing well, they started to point finger at others blaming each other to protect their career advancement. None of them were ready to take the responsibility. And this creates a huge problem within the organization. No ones takes the responsibility . so top management may faced to find out the problems and their proclivity may falls. In other hand in this situation employees don’t want to improve their problems.
Communication problem between layers of management In an unusual break from Japanese business culture, communication problems prevailed in Nissan between the layers of the organization. Staffs were relatively uninformed of key corporate business decisions that had been taken. Again, top management seemed out of touch with what policy execution issues were present at the middle and lower management levels. As Japan’s business culture says that large troubled employees are bailed out by the government so Many employees of the company didn’t have a sense of crises about possibility of bankruptcy at Nissan.
Communication is the core concept of business. Most successful organization proved them because they have the strong communication system between top management and lower level management. If Nissan’s employees don’t know what are the problems are faced. Even they have no idea about this. There were also the communication problems between the layers of the organization. Staffs were relatively uninformed of key corporate business decisions that had been taken. Again, top management seemed out of touch with what policy execution issues were present at the middle and lower management levels.
Employees working in functional or regional departments lagging in accountability Employees working in functional or regional departments tend not to ask themselves as many hard questions as they should regarding their performance. According to Japanese culture most senior person gets the responsibility . promotion depends on the basis of age educational level. That makes disharmony in the group. And if anything goes wrong in the group than responsibility goes to most senior person of the team. Accountability of other members is diffused.
So the employees of functional level and regional level department tend not to ask any question regarding their performance. In this reason new ideas or think in new ways couldn’t challenge their performance. Japanese business tradition that large troubled employers would always be bailed out by the government of Japan Employees of the Nissan didn’t have the idea of crisis about the possibility of bankruptcy at Nissan because of Japanese business tradition, which implied that large troubled employers would always be bailout by the government of Japan.
Employees at Nissan constantly believed that his or her department was performing well leaving others to blame only. Employees had the idea of the bad time that Nissan was going though but none thought of Nissan being bankrupt since the Japanese Government has always been saving corporate companies in financial crisis like this. The lack of vision from management and the persistent problem of ignoring the voice of Nissan’s customers Top management had developed a tunnel vision that was best for the company size and its employee rather than customer needs.
Nissan’s top management failed to delegate the responsibilities to the lower level employees and that created a vacuum within the company. Nissan has been focusing on more production regardless of the fact that their product line is lagging in terms of design and other customer expectations. Nisan has been focusing on out-competing rivals with unit of production taking the customer choice for granted. Customer satisfaction is the main perception of the organization. Nissan has been focusing on regaining its market share as opposed to restoring margin per unit sold rather than what is best for their customer.
What are the needs of their customer. What results that’s dissatisfaction among the customer. They also classified their customers. Nissan’s top management was botched to allot the tasks to the lower level employees and that created a vacuum within the company. Under Ghosn's "Nissan Revival Plan" (NRP), the company has rebounded in what many leading economists consider to be one of the most spectacular corporate turnarounds in history, catapulting Nissan to record profits and a dramatic revitalization of its brands.
More production regardless of the fact that their product line is lagging in terms of design and other customer potential was focused bye Nissan. OPPORTUNITIES Strategic Partner of Nissan: Nissan was in need of a strategic partner that could lend both financing and new management ideas to foster a turnaround. In March 1999, Nissan President and Chief Executive Officer Yoshikazu Hanawa found such an alliance opportunity with Renault, which assumed a 36. 8% stake in Nissan, allowing Nissan to invest $5. 4 billion and retain its investment grade status.
Hanawa was also able to get Renault’s top management to agree to three important principles during negotiations like: 1. Nissan would maintain its company name 2. The Nissan CEO would continue to be selected by the Nissan Board of Directors 3. Nissan would take the principal responsibility of implementing a revival plan Here we can see that Nissan has a great opportunity to start their new venture with the new company named Renault. And Renault was much considering, which allowed Nissan to invest $5. 4 billion and retain its investment grade status.
And as Hanawa was able to get Renault’s top management to agree to three important principles during negotiations, we can see that this man was smart enough in negotiating like, Nissan would maintain its company name he Nissan CEO would continue to be selected by the Nissan Board of Directors and Nissan would take the principal responsibility of implementing a revival plan. So, if the top level management of Nissan can continue to cope up with this new alliance well it has a great scope to have the highest place. Expanding Nissan’s Business into New Regions:
Nissan lacked market share and distribution facilities in Latin America. By creating the new alliance Renault, Nissan and Renault expected to balance their market portfolios and become more competitive. Renault wanted a partner that was savvy and established in the North American and Asian markets. Because Renault has strong position in Europe, France and in Latin America, especially in Brazil, but it lacks a high market in North America and Asians markets. Renault has found that Nissan is a very good choice for that because Nissan had the second largest market share in Japan and a strong market share in North America.
Furthermore, the merger of Daimler and Chrysler in May 1998 gave Renault a sense of urgency about finding a partner to compete more effectively on a global scale. As a result, Renault and Nissan agreed to a Global Alliance Agreement on March 27, 1999, with Carlos Ghosn who was designated to join Nissan as COO. If Paced and Channeled Correctly, Cultural Differences Could Provide Opportunity for Rapid Innovation Despite all of his doubters, Ghosn embraced the cultural differences between the Japanese and himself, believing fervently that cultural conflict, if paced and channeled correctly, could provide opportunity for rapid innovation.
He always thought that cultural deference’s cannot do harm only rather, he took it in a positive sense, as he was an optimistic. His philosophy was that if he would do better with a mix of his own outlook and the Japanese ones too. He felt that by accepting and building on strengths of the different cultures, all employees, including Ghosn himself, would be given a chance to grow personally through the consideration of different perspectives. The key, he reiterated many times, was that no one leader should try to impose his/her culture on another person who was not ready to try the culture with an open mind and heart.
In this vein, Carlos Ghosn came to Japan knowing that if he were to start imposing reforms by using the authority of his company position, rather than work through the Japanese culture, then the turnaround he sought would likely backfire. Transparency within Nissan: Ghosn always believed that an organization can only be effective if followers believe that what the leaders think, say, and do are all the same things. Transparency is something that is really important to have within the company. Especially the top level management has to create an image within ts employees that what they do are always clear to all of them. The CEO as well as the other top level managers have to do all of their plans organized and make it clear to others, who work under them. Because employees are the assets of a company and if they find their supervisors much cloudy, they will not be very much willing to do their works clearly as well. So transparency is a very much important thing within this Nissan and the employees are also going to be encouraged a lot more if this transparency continues always. More Execution and Less Strategy: Nissan has a strategy in which execution is 95% of the job.
Strategy is only 5%—organizational prosperity is tied directly to measurably improving quality, costs, and customer satisfaction. As Nissan is giving priority to the thing that maintain 95% execution and 5% strategy is organizational prosperity which is tied directly to measurably improving quality, costs, and customer satisfaction. This is a different strategy taken by the Nissan’s CEO but his this philosophy will going to work very efficiently if used properly. Because execution is something which can be the key of success of a company, but for that the first thing is that the company has to have the perfect form of it.
A good strategy of business alone cannot do the best of it but it is execution which is can be more important than strategy. So if Nissan can follow this in a planned way, it has a good scope to do much better than now. The Nissan Employees are Optimistic and Quick Learners: Even though Ghosn expected that his attitude toward cultural respect and opportunism would lead to success, Ghosn was pleasantly surprised by how quickly Nissan employees accepted and participated in the change of their management processes.
In fact, he has credited all of the success in his programs and policies to the willingness of the Nissan employees at all levels to change their mindsets and embrace new ideas. Ghosn was always supportive towards his employees and as he used to encourage the employees, they put their best effort to change their mindset and accept and innovate new idea. As Nissan has such a force of good employees, so if it does maintain, it would surely have a great positive change. The CEO as well as the employees can bring up new ideas and implement the easily with good spirit and it would really help the company to go ahead.
Opening a new program- Cross Functional team (CFT): When Ghosn found out that the employees of Nissan were quite energetic, as shown by their recommendations and opinions. With this in mind, Ghosn opted to develop a program for transformation which relied on the Nissan people to make recommendations, instead of hiring outside consultants. He began to organize Cross-Functional Teams to make decisions for radical change. Part of his interest in doing this in-house was to address the motivation and horizontal communication issues that he encountered throughout the organization.
He felt that if the employees could accomplish the revival by their own hands, then confidence in the company as a whole and motivation would again flourish. In a sense he was making it clear that he was also putting his own future in their hands because he had publicly stated several times that the Nissan company had the right employees to achieve profitability again in less than two years. Nissan’s CEO’s this step is something that can be valued to a higher extend.
CFT is a strong team within the company which consists member from the company and it is a great thing by which the employees get motivated and they can share their recommendations. It is the employees within the company who actually knows the best what to do even more than the other consultancy firm, because the Nissan employees are directly related with the company. So if this department can be formed well and include all the efficient and knowledgeable employees it would be a great scope to take Nissan in a much higher level. It would also decrease its expenses because the other they don’t need to pay In the outsourcing.
Nissan Revival Plan (or NRP): When Ghosn understood that CFT can only give recommendations and there were little implementation yet and only planning. Having received from the CFTs the recommendations, which included plant closures and reduced headcount, Ghosn created and communicated what he called the that in October of1999. From that point forward he stressed implementation and follow-up, rather than planning and reexamining decisions. Other CFTs were formed, but the bulk of his efforts lay in ensuring high-quality execution of the decisions that were laid out in the plan.
Ghosn’s main focus areas included: (1) Development of new automobiles and markets, (2) Improvement of Nissan’s brand image, (3) Reinvestment in research and development, and (4) Cost reduction. This was a unique department within Nissan which really helps the managers to take decisions and by the suggestions of the employees the managers can easily do their works. So this is a great opportunity for Nissan having a department like this which can really help it’s manages out. Opportunities after Getting Separated with Keiretsu Partnerships:
As one of the biggest changes of the NRP, Nissan broke away from the Japanese cultural norm of keiretsu investments. However Nissan maintained customer-supplier relationships with those former keiretsu partners. As it turned out, Nissan regained billions in tied up capital to use for debt servicing and new product development without losing any significant pricing advantages. In fact, because Ghosn put such an emphasis on reducing purchasing costs, Nissan actually began to substantially lower its costs after the keiretsu investments were sold. And by this, Nissan had made big amount of money with which it can expand at least a wing of it.
And because Nissan reduced its price rate so
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