Nissan revival plan was achieved one year ahead of schedule
In 1999 Nissan had been facing great losses for seven of the past eight years which were now resulting in debts. This was mainly caused by the Japanese business custom of keiretsu investments which left little capital for other investments, like innovations in product designs. This lack of design innovation furthermore caused the Nissan brand to weaken as competitors were producing vehicles more stylish and up to date, reflecting customer demands. To foster a turnaround the Nissan president and CEO Yoshikazu Hanawa formed a mutual beneficial strategic alliance (Global Alliance Agreement) with Renault, allowing both companies to expand in new desirable geographic areas. With his experience in turnarounds Carlos Ghosn seemed to be the obvious choice to lead the Nissan turnaround from both the Renault and Nissan point of view.
The approach was an overall success in meeting the specific and measurable goal of turning the losses into profits not only on time but 6 month prior to the deadline. The Nissan Revival Plan was achieved one year ahead of schedule and succeeded in reducing their purchasing costs by 20 % which meant that they approximately reached the level of Renault. The large emphasis Ghosn placed on the execution also gave him an edge as this phase is much more demanding in terms of communication, meeting objectives on time and budget, potential conflicts with power resources and resistance to change.
The respect Ghosn showed for the Japanese culture was vital for the initiatives to succeed, even though I believe it was a mistake for him not to learn about Japan before coming there as it is very easy unintended to insult people from other cultures if you are not familiar with their specific customs, but it also gave him an edge in being open-minded in perceiving the Japanese and Nissan culture. Coming to Japan he only brought three principles of management with him were to be well received and understood by employees: transparency, execution vs. strategy; improving quality and customer satisfaction and reducing costs.
Not just anybody could have managed the Nissan turnaround as well as Ghosn did. For instance, A COO from Japan would not have been able to cut back on keiretsu investments. Because of the Japanese business culture to make these kinds of investments and the Japanese emphasis on cooperation and loyalty, it would have been considered to be a sort of betrayal and ultimately would 3
have harmed the Nissan brand even more. Only an outsider with different cultural background could legitimize such a change. The resistance Ghosn eventually faced when ignoring the almost sacred tradition of promoting by education, age and time within the company would likewise have been much more pronounced if the initiative came from a Japanese COO.
Resistance to change
Ultimately some sort of resistance was inevitable because of the major structural and cultural changes Nissan was facing with Ghosn as COO. People generally do not resist change, per se. but some underlying causes, like lack of understanding, fear of the unknown or fear of an outcome worse than the present situation.1 In this specific case Ghosn went a long way implementing many changes before meeting actual resistance in form of lack of cooperation among employees caused by the elimination of the old promotion system, allowing younger, less experienced employees to be promoted based on their skills and achievements. This resistance was clearly caused by fear of the unknown and fear of loosing/not gaining status by promotions. Resistance is generally a very important form of feedback and Ghosn chose to view the resistance as an opportunity for experience rather than a limitation.2
1 Dent, E. B. and Goldberg, S. G. (1999). Page 26
2 Ford, J. D. and Ford, L. W. (2009). Page 101
3 Nohria, N., Joyce, W. and Roberson, B.(2003). Page 45
4 Ford, J. D. and Ford, L. W. (2009). Page 100
Ghosn has overcome the actual resistance and prevented potential resistance to the cultural and structural changes in large by clearly communicating all initiatives and objectives to all Nissan employees. Communication had previously been a problem within the company but by creating a matrix structure (combining efficiency and effectiveness) and through consistency between his own actions, thoughts and communication Ghosn was making sure that transparency as well as communication within the organization was improved and afterwards maintained, keeping focus on the strategy.3 Likewise by creating the Cross-Functional Teams, he sought to build engagement and participation and made sure that the employees would have a sense of ownership over the Nissan Revival Plan and motivate communication across departments, stimulate future risk-taking and responsibility as well as regaining confidence in the company’s future. Mitigating resistance by involvement and communication are generally very effective and will increase employee commitment to execution.4 4
The former lack of accountability and acceptance of responsibility among employees was eliminated by directly assigning responsibility and accountability and encourage people to take risks. This was accomplished in part by monetary rewards and stock options whenever the actions led to increase in operating profits or revenues.5 The previous consensus mentality at Nissan seems to have been: â€•If everyone one is responsible then no one is accountable, and nobody gets punished,â€- which was affecting risk-taking and slowing decision-making processes across the company.
5 Fu, Dean and Millikin, john P. page C553
As mentioned above, the understanding and respect Ghosn expressed for the Japanese Nissan culture and the fact that he communicated his wish to work through this culture were vital for his acceptance within the organization. He made it clear from the very beginning that he too had a personal stake in the outcome and thereby created a sense of cohesion with the employees. His visibility in the organization from day one and the consistency between his communications and actions was a new but welcome change that made him human in the eyes of the employees. This transparency and consistency together with his explicit promise to respect the culture also helped building a sense trust and thereby employee support for most of Ghosn’s change initiatives.
The Nissan president and CEO, Yoshikazu Hanawa, had a positive attitude towards Ghosn and his experience and abilities in turnarounds, since he explicitly asked Renault to send Ghosn to Nissan to lead the changes. But because Ghosn was a foreigner and not accustomed to the Japanese way of doing business, several industrial business analytics expressed scepticism and concern for this arrangement. It is likely that middle-managers and higher-level-managers have been influenced by these critics and therefore had a negative attitude towards Ghosn as COO, but if they did, they did not make much fuss about it. 5
When you consider the differences between Ghosn’s leadership style and the Japanese (Nissan) way of doing business, it is actually a bit of an achievement that resistance did not arise earlier and more pronounced than it did. The cultural differences between Ghosn, with his experience in working in organizations with strong corporate cultures, and the Nissan organization, with its weak culture traits, were very pronounced and had great potential to cause some trouble along the way, but it takes two to tango, and one of them has to lead.
The initiative of putting together Cross-Functional Teams had great potential for meeting resistance in part because of the Japanese tradition of reaching consensus when making decisions. In addition, if every member of a Cross-Functional Team had to make sure, that their respective departments were supporting every suggestion, then the decision-making process would not only have been slowed severely but would have staled. It is also very likely that the employees at Nissan would have resisted the Cross-Functional Team initiatives because of the Japanese culture of loyalty and cooperation within departments but not necessarily across departments (especially not in troubled times) caused by the weak organizational culture.
Early on Ghosn became aware that in order to turn Nissan around, he would have to address some of these cultural issues in order to get to root of the problems and meet the overall goal of creating profits. First and foremost, he would have to communicate and make understood the importance of meeting customer wants and needs (included a radical change in the decision-making processe).6 The management would have to create a shared vision (or long-term plan as opposed to their usual sort-term). Management at Nissan was displaying tunnel vision and was focusing on regaining market share instead of increasing margins and product innovation to meet customer demands.7 The emphasis placed on informal contacts and information, complicated knowledge sharing across the organization, as nothing was written or formally communicated, which also slowed decision-making processes. He would have to overcome these cultural obstacles (underlying problems) before addressing the real problems at Nissan.
6 Nohria, N., Joyce, W. and Roberson, B.(2003). Page 46-47
7 Fu, Dean and Millikin, john P. page C549 6
Luck and timing
The timing for these changes was absolutely perfect. Had Ghosn and his Cross-Functional Teams tried to implement the same changes a few years earlier, they would most likely have met great resistance and possible failure. But because of the resent bankruptcy of the major financial house, Yamaichi, and the lack of bailout by the Japanese government, the employees at Nissan began to take their situation seriously and this imposed a sense of urgency among the employees. This sense of urgency helped push changes by making the employees more willing to cooperate and implement the proposed changes as well as taking more risks in order to turn the company around. This willingness for taking risks decreased the previous fear of making decisions (especially faulty decisions) which decreased the need for consensus decision-making , which again increased the speed with which decisions was able to be made. This further fostered motivation for innovative proposals for the product line, which had a positive effect on the Nissan competiveness and on consumer satisfaction. In short, the bankruptcy of Yamaichi was a stroke of luck at the exact right time to help kick-start the major changes at Nissan, especially in the minds of the employees.
In the next few years (2005) Ghosn will have to return to Renault to take over as CEO (his lifelong dream). The right replacement for his job must ensure continuous growth and success, keeping focus on customer needs and increases in profit as well as to nurture the newly accomplished sense of urgency to keep driving employees towards continuous improvements (Nissan 180). A successor should, besides the above mentioned, be able to create a balance between long-term and short-term objectives to ensure that employees do not fall back into old habits.8 Constantly setting short-term objectives, aligning them with long-term objectives will enhance motivation among Nissan employees as they will see their effort and hard work paying of.
8 Griswold, H. M. and Prenovitz, S. C.(1993). Page 5
9 Krackhardt, D. and Hanson, J. R.(1993).
I would recommend Ghosn to use the network analysis9 as a tool for helping him making the best possible decision, ensuring that the person he will choose is trustworthy among employees, accountable and responsible, has influential power. The friendship network is always a good place to start, but he should be sure to mad both the communication network and advice network as well. Perhaps there will be an obvious overlap between the three. 7
The Nissan turnaround was a great success in that it met measurable objectives and accomplished to overall strategic goal of increasing profits within the schedule. By approaching the Japanese and corporate Nissan culture with an open mind, Ghosn was able to gain the employees trust. His approach to the cultural differences combined with a great stroke of luck, turned the challenge into and opportunity and he was thereby able to meet the overall goal. In facing the fundamental problems within the organization; lack of clear profit orientation, insufficient focus on customers and too much on competitors, lack of a sense of urgency, no shared vision or common long-term plan, lack of cross-functional, cross-border, cross-cultural lines of work, he had to bend the rules of engagement by changing large parts of the Nissan culture. More specifically, based on the recommendations from the Cross-Functional Teams, he implemented some rather radical changes on the Japanese traditions of doing business, in order to help Nissan get back on track. Even though he was hereby violating his prior commitment to be sensitive to the Nissan culture, he did not experience serious resistance in doing so, because it was ultimately Nissan employees suggesting these changes, he was just executing them. In choosing his Successor Ghosn should map the informal networks within the organization, emphasising on trust, accountability and power to create change. 8
List of literature
· Dent, E. B. and Goldberg, S. G. (1999). “Challenging ‘resistance to change’.” Journal of Applied Behavioral Science, 35(1), 25-41.
· Ford, J. D. and Ford, L. W. (2009). â€•Decoding resistance to change.â€- Harvard Business Review, 87(4), 99-103.
· Fu, Dean and Millikin, john P. (2003) â€•The Global Leadership of Carlos Ghosn at Nissan,â€- Thunderbird – The American Graduate School of International Management, C546 – C556
· Griswold, H. M. and Prenovitz, S. C.(1993).â€•How to translate strategy into operational results.â€- Business Forum, 18(3), 5-9.
· Krackhardt, D. and Hanson, J. R.(1993).â€•Informal networks: the company behind the chart.â€- Harvard Business Review, July/August, 104-111.
· Nohria, N., Joyce, W. and Roberson, B.(2003).â€•What really works.â€- Harvard Business Review, 81(7), 42-52.