Carlos Ghosns Turnaround Of Nissan Management Essay

This case evaluation will address how Carlos Ghosn executed his turnaround of Nissan, after he was appointed COO of Nissan in 1999. Nissan was facing ongoing losses and a staggering debt, threatening to close down the company. As a result of a strategic alliance between French Renault and Japanese Nissan, Executive VP of advanced R&D in Renault, Carlos Ghosn, was asked by Nissan CEO Hanawa to become the COO of Nissan, in order to turn Nissan around. In March 1999, Ghosn began his work at Nissan and Ghosn said that he would turn Nissan around within two years, or resign as COO. Although Ghosn has a rather remarkable global career, this was his first experience with a Japanese organization.

Hypothesis:

Carlos Ghosn succeeded in turning Nissan around through sequential change, where he had time to secure buy-in and ownership in order to reduce resistance to change as well as addressing national and organizational cultural challenges.

Approach

To evaluate on the case and prove my hypothesis, I will first look at resistance to change as a concept and then see if resistance to change in Nissan was inevitable and exemplify any underlying causes of resistance. Second, I will go over the organizational culture within Nissan to assess how different parts felt about Ghosn and the reasons why, I will also assess if Ghosn was able to enlist support within Nissan. Third, I will also include how the Japanese national culture was a great part of the organizational culture, to evaluate how pronounced the cultural differences have been between Ghosn and the Nissan organization and if culture was a helper or a hindrance. Fourth, I will comment on Ghosn’s timing of the turn around, to assess if this would have been possible to achieve a few years earlier. Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 3

Resistance to change

The concept of resistance to change has many ways of being perceived. Ford & Ford 20091 argue that resistance is a form of feedback and that change agents should approach and include input from resisting employees, rather than pointing fingers and telling resisters to comply, no matter if the resisting employee agrees or not. Dent and Goldberg 19992 argues that people do not resist to change as such, but that they resist to some of the effects of change, be it loss of pay, loss of status or loss of privileges. Dent and Goldberg draw on the findings of Kotter who noted that employees often understand the new vision and wish to fulfill it, but the employees point out obstacles that might hinder the execution and that it is sometimes seen as resistance, rather than constructive input for the organization. Thus I argue that resistance will most likely always occur, but it is how it is being handled that will determine if resistance to change in the end was unproductive resistance or improving input.

1 From Decoding Resistance to Change, Jeffrey D. Ford and Laurie W. Ford, Harvard Business Review, 2009

2 Challenging “Resistance to Change, Eric B. Dent and Susan Galloway Goldberg, Journal of Applied Behavioural Science, 1999

3 Page 29-30, Challenging “Resistance to Change, Eric B. Dent and Susan Galloway Goldberg, Journal of Applied Behavioural Science, 1999

Referring to the three stages of unfreezing, disturbance and refreezing by Lewin3, Ghosn approached Nissan by quickly “unfreezing” the organization by imposing cross functional teams who had two months to come up with ideas on how to optimize the organization, then Ghosn “disturbed” the organization by implementing the suggested changes and after 18 months he “refroze” the organization, cementing the new changes, although striving towards optimizing the organization even more. The main paradigm shifts in Nissan happened in this three-step sequence. The result of the “disturbance” which the implementation of the cost reducing initiatives had led to, in terms of job cuts and sales of Nissan’s “Keiretsu” partners/suppliers, resulted in resistance from the employees as well as external resistance from the Japanese government and industry analysts.

The underlying causes in relation to this resistance was that Japanese business culture had a principle of employing people for life as well as the “Keiretsu” partnership has been a cornerstone in the booming Japanese economy since after the Second World War. Thus I argue that resistance was inevitable when Ghosn was affecting areas highly related to culture and norms. However, to some degree, Ghosn managed to avoid resistance, by ensuring management involvement. He did so by creating nine cross functional teams (CFTs), where managers from across the Nissan organization were handpicked by Ghosn to come up with suggestions on how to optimize Nissan. Being heard can in itself make people buy-in on the Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 4

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planned change. Resistance is not a bad thing per se, if handled correctly. It is often the engaged employee who is questioning change. Thus, the leader should listen to the employees, even if the resistance seems to be annoyance, the input from the employees can entail important details which the leader or management might not have been aware of. Ghosn has in my opinion understood this very well, and thus introduced the CFTs.

Organizational culture in a Japanese organization

Nissan’s management during the 1990’s had a focus on short-term market share growth instead of a long-term strategy of securing a profit. After having suffered losses seven out of the past eight years, it was clear that this approach by the management had not been sufficient for the company to ensure its survival and development. Change was surely needed in 1999 when Ghosn was appointed COO. Ghosn was quick to enter into changing the organization, also in terms of how management was creating decisions, as well as how managers were promoted. In relation to how Ghosn approached the decision-making processes, Ghosn was aware that the organizational culture of Nissan was typically Japanese. Decision-making processes were slow, due to the “murashakai” consensus seeking society that has been predominant in Japan. This had to be changed, otherwise, Ghosn would not have succeeded within the short deadline he had set for himself to turn Nissan around. As a result, Ghosn changed the decision making processes in Nissan by introducing his CFTs, were the CTFs should meet over a short period of time and come up with suggestions and then Ghosn would decide on which suggestions to proceed with. In addition, Ghosn also introduced a change in how people could achieve promotion and even demotion.

The typical way to achieve promotion in Nissan, as well as in the rest of Japan, had been by working at a place for a long time and having a high educational level. After Ghosn’s changes, other factors were equally or even more important to achieve promotion. One example was when a woman only holding a high school diploma was promoted to being a manager due to her merits as a keen problem solver and steady worker. She would normally not have been promoted if someone with a higher educational level were to be found in her department, even if the person with a higher education was not performing as well as her.

I firmly believe that this has resulted in disgruntled employees, who has been in Nissan for years and years and were waiting for their turn to get promoted, solely based on their seniority, as is it was customary in Nissan and the rest of Japan. But even though Ghosn might have pushed some employees away by allowing this new way of promotion, he also won popularity and support among the employees who might not have been able to get a promotion earlier. What is highly important to note in this context, is that although parting the waters in Nissan, Ghosn made sure that productivity and creativity was a way to get promoted Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 5

and channeled people with these resources to lead his turn around towards achieving the Nissan Revival Plan. In other words, this played a key part in executing his strategy, as without assuring the right resources, here in the shape of productive and creative employees, Nissan would not change in the pace Ghosn needed Nissan to change.

Concluding from this, I will say that Ghosn was successful in enlisting support from the different parts of the Nissan organization. Firstly, Ghosn skillfully made handpicked managers across the organization to buy-in on the proposed changes, as the managers themselves developed these. Secondly, Ghosn made sure that the people, who he thought had the right attitude, who were working hard and creatively, could be promoted and therefore they would appreciate his changes.

However, Ghosn did not receive the support from everyone. On the contrary, I would expect resistance from people who were expecting promotions to happen, just because of seniority. I would argue that when Ghosn could not persuade everyone in the organization to support him, Ghosn explicitly coerced the organization. One example was when Nissan had to lay off people, Ghosn kept referring to the fact that another big Japanese company, Yamaichi, was not bailed out by the government and that if Nissan did not put all their effort into turning Nissan around, Nissan would face the same dire consequences. One part the organization was however always in favor of Ghosn, the CEO Hanawa, who had requested Ghosn in person. I believe that the support of a Japanese superior has helped Ghosn in many of the situations, keeping the informal power relations, the so-called Nemawashi, in mind. Thus Ghosn could actually benefit from Japanese culture for once, where as it has been a hindrance many other times.

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The issues within Nissan were mainly connected to the general culture in Japan as stated above. However, Nissan also had issues, which were rather unusual for Japanese companies. These were present before Ghosn entered the company. Here I am referring to the problems of poor follow up on implementation once decisions were made, the former top management’s tunnel vision towards regaining market shares instead of focusing on the profit margin and general communication problems between the layers of the organization. This had led to managers not taking responsibility but rather pointing fingers at others to do the job at hand. Ghosn attacked these issues head on, by creating the CFTs. Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 6

The cross functional aspect assured that every level of the organization had a voice but also furthered the transparency process within Nissan, one of Ghosn’s three management principles4. The two others are:

4 “The Global Leadership of Carlos Ghosn at Nissan” John P. Millikin, Thunderbird, 2003

· Execution is 95 percent of the job, strategy is only 5 percent.

· Communication of company direction and priorities as the only way to get truly unified effort and buy-in.

Furthermore I recognize that Ghosn’s demands towards management increased highly, but within reasonable limits. He demanded positions without responsibilities to be removed and from his remaining management he demanded that they would take responsibility for their mistakes. However, when management was to present information, the information must have been scrutinized for errors, as he did not accept reports to include mistakes.

In line with Ghosn’s transparency principle, he made sure that cross-functional department members had very clear lines of responsibility, making sure that the old organizational issues of pointing fingers at others in stead of taking charge was dealt with. In my opinion a very important step in order to counter act the latent behavior within the organization. However, it remains unclear how exactly Ghosn did communicate this to his staff. It would take a strong and clear communicative effort within Nissan to make sure that the managers would follow Ghosn’s demands. I will however assume that as Ghosn so successfully turned Nissan around, he must have done a sufficient effort.

Evaluating on the case, I see little reference to how his strategy was created, it seems like Ghosn had a ready strategy a few weeks into his new position, although it was further developed through the usage of CTFs. Thus I regard the creation of the CTFs as part of the strategy execution. I do so as the CTFs in themselves, played a big part in executing what I see as step one; unfreezing the organization and the first step of getting managers to buy-in on Ghosn’s overall strategy. This is much in line with his “execution is 95 percent of the job, strategy is only 5 percent” principle as after the first two months, Ghosn spend 16 months on executing his strategy.

This also leads me back to my hypothesis of Ghosn turning Nissan around by a process of sequential change. Sequential change is a long-term process of several steps developed through rational conclusions. I see many similarities in the way Ghosn approached the Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 7

turnaround and sequential change. He gave it time, two years. He divided the execution into steps; putting together the CTFs over two weeks, then letting the CTFs work for two months and then introducing the approved CTF suggestions over 14-15 months. From my point of view, Ghosn showed intensive leadership in his planning but for sure also in his execution, which allowed him to handle any resistance in the organization. Thus I see my hypothesis as confirmed.

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Luck and timing

I have no doubt that Ghosn was successful in his turnaround of Nissan. But can it all be accredited to Ghosn’s leadership skills or was the turn around fueled by other factors?

Surely strategy requires skill to be planned and resources to be executed thoroughly, but when looking at the timing of Ghosn’s entry into Nissan, the external environment is worth a thought. In addition to the external environment, one should consider the fact that the company for the better part of the previous decade was building up an almost insurmountable debt, only turning a profit few times.

Ghosn entered the organization in 1999, almost at the same time as the dotcom crisis happened. Several international companies went bankrupt and for the first time a large Japanese company faced ruin, as the Japanese government declined to save the company. This shocked corporate culture, especially in Japan, where the Keiretsu partnerships were reevaluated, as they might be familiar suppliers with good connections, but if they were too expensive to let the buyer make a profit, then they could not maintain their relationship. This happened in the case of Nissan too, on request of Ghosn and his CFTs. But as it was an economic trend across companies, the confrontation of having to break with old traditions was made easier. Also, as stated earlier, Ghosn made use of the ruined company Yamaichi to coerce his employees. Ghosn would not have had this example, or a similar one for that matter, just a few years earlier.

I cannot say for certain that Ghosn’s strategy succeeded due to his luck of timing, but circumstances were definitely in his favor, when looking at how Ghosn executed his strategy. In my opinion, a leader can always make changes in an organization and execute them. However, when referring to resistance to change and how the organization feels about the leader as in this case, the process would have been a lot harder and the leader a lot less popular, if the economy of both the company and society had not been in as bad a state as in this case. I would also doubt if Ghosn would have been able to succeed in turning Nissan around in only 18 months, but with the right strategy and the resources to execute it, I am Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 8

confident that Nissan could have been turned around, even a few years earlier, as the debt of Nissan would have been lower, not acting as such a burden as in 1999.

The alternatives that Nissan would have faced by beginning the turnaround a few years earlier are not clearly in the favor of a strategy similar to the turnaround that began in 1999, in terms of massive layoffs being accepted by government or employees. However, having started the turnaround years earlier, Nissan would have avoided the massive debt’s burden, which more or less forced Nissan to sell off the Keiretsu partnerships. This would again have meant one hurdle less to turnaround Nissan, as the culture clash would have been less.

To sum up Carlos Ghosn’s approach to turning Nissan around, I would say that he executed an appropriate strategy at the time where it was highly needed to save the company as well as the external environment of Nissan was in favor of his strategy of sequential change, that gave him the time to attend to organizational and cultural issues and to counter resistance to change. Exam assignment in CM J41 Strategy Execution By Rune Sixtus Bruhn – CPR 061082 – 1987 9

Sources:

Case hand out:

“The Global Leadership of Carlos Ghosn at Nissan” John P. Millikin, Thunderbird, 2003

Articles:

Decoding Resistance to Change, Jeffrey D. Ford and Laurie W. Ford, Harvard Business Review, 2009

Challenging Resistance to Change, Eric B. Dent and Susan Galloway Goldberg, Journal of Applied Behavioural Science, 1999

Christiana Gold Leading Change at Western Union, Jordan Mitchell and Alison Konrad, Ivey Management Services, 2005

Slides/Class presentations

I have used ideas and approaches discussed in class in general, but I mainly draw my inspiration from the lectures in class 5 and 6.

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