The Nissan Revival Plan

It will be assumed that the reader is familiar with the case; hence references to the case will not always be explicit and abbreviations used in the case may not always be explained. The essay will be structured as follows: First a very short summary setting the scene of the case, then my bottom-line evaluation where I give my conclusions on the case followed by the evaluation criteria that I have used to reach this conclusion and finally a proof of the evaluation will be given.

1.1 Summary

Carlos Ghosn joined Nissan as COO in 1999 at a time where the company had suffered losses for seven out of eight of the prior years. Against all odds he manages to turn Nissan profitable within two years, despite huge cultural differences. The main instruments used for this turnaround was engagement, communication, structural changes and change of some cultural areas that have been holding the company back.

2.0 Bottom-line evaluation

When looking at the results from the Nissan Revival Plan (NRP) it is quite obvious that Carlos Ghosn’s turnaround of Nissan worked extremely well. The statistics from appendix 1 in the case leaves no doubt about this.

I believe that Ghosn’s success with the turnover was mainly due to his excellent approach (with an overall “approach-score” of 92%, cf. Appendix A), characterized by a great deal of modesty and a willingness to understand and respect the Japanese culture, before trying to change the organization. Further he made a clever choice by claiming that he would turn the company profitable within two years or step down, and at the same time give the employees a great deal of responsibility in achieving this profitability. This way he put himself in the same boat as the employees and consequently they would either succeed together or fail together. His ability to get people engaged and motivated in the project was one of the key factors of success along with his honest and direct communication.

3.0 Evaluation criteria

I this section I present and define 4 evaluation criteria in order to evaluate Carlos Ghosn’s approach to the turnaround of Nissan.

Nissan was facing the prospect of either making the necessary changes to turn the company profitable within two to three years or go out of business. Hence, a large change was required which is apparent from Ghosn’s four main focus areas that deals with everything from new product development to cost reductions (everything important is going on simultaneously). Further it had to happen with a very short time horizon. Given these characteristics I would describe this as a complex change. 4

In order to be successful with such a complex change, it is vital to get the organization (i.e. the employees) to buy-in on the course of change from the beginning. One very important way to do this is by engaging the people that the change will affect and to communicate very clear. Further, it is important to be able to execute the desired change and in relation to all this being able to manage the people involved. This leads me to the following four evaluation criteria:

1. Support from organization

o the overall willingness of the employees to contribute positively to the change of Nissan at all levels of the organization

2. Communication

o the ability to communicate efficiently, effectively and clear with and within the organization

3. Execution

o the ability to make actionable changes and implementing the desired strategy

4. Manage in a foreign culture.

o the ability to successfully manage in a foreign culture where people have very different paradigms than you

The following section will provide the reader with a discussion of each evaluation criteria.

4.0 Proof of the evaluation

This section will consist of a discussion of the evaluation criteria introduced in the section above. Each criterion will be discussed and a rating of each action/approach will be given to give an evaluation of Ghon’s overall approach, cf. Appendix A.

4.1 Evaluation criteria #1: Support from organization

“Make sure you are focused on your own people. Bring in them motivation and sense of ownership, then you can do your miracle.”

– Carlos Ghosn

Based on the case it seems that there were very little resistance to change from the organization, the only explicit resistance mentioned was that promotions of younger leaders over older, longer serving employees caused some problems regarding lack of cooperation (p. 553) – this is likely to take place at the middle to lower management level. The underlying cause of their resistance was probably a fear of loss of status, job, pay and also a general fear of losing face when a younger employee gets promoted over you. Further, the media and the government criticized the layoffs of employees; however this did not seem to affect the change inside Nissan. 5

To my best judgement I believe that the level of change he met was inevitable given the situation. The reason why Ghosn didn’t experience more resistance was that he took a series of very good actions to mitigate any resistance to change and get people to support the change.

Ghosn chose to rely on the Nissan people rather than external consultants, by establishing nine Cross-Functional Teams (CFTs) that were to go over the business and come up with solutions for a revival of Nissan. Via this empowerment of the employees he gained motivated employees that felt an ownership of the change plus a new corporate culture in the company, that build on the best of the Japanese culture. Further, the CFTs came up with some of the tough decisions needed (such as plant closures and employee reductions) and it is quite possible that since the employees themselves came up with these solutions, the organization as a whole was less resistant. One disadvantage of choosing an internal solution is that it might be a slower process than choosing an external team of consultants with no relationships internal in the organization to consider, etc.

Additionally Ghosn put himself on the line by stating that if he had not turned Nissan profitable within two years, he would step down. This statement, combined with the fact that he relied on the employees to come up with a great part of the solution, showed the employees that they were all in the same boat – either they would succeed together or fail together. This has definitely helped mitigating change resistance since the employees could tell that Ghosn was sincere in wanting this turnaround to work out. It was a very clever move and I don’t really see any disadvantages of doing this, because if he hadn’t turned Nissan profitable within the two years, he would probably have been asked to leave anyways.

An external event proved helpful as Yamaichi went bankrupt just around the time he arrived in Japan, and they were not bailed out by the Japanese government. This stated a perfect example that employees could no longer be sure to keep their jobs. By frequently using Yamaichi as an example, Ghosn made the employees care about the corporate problems in Nissan thus increasing their willingness to change. Undoubtedly this made Ghosn’s job of changing the organization a lot easier, and I am certain it would not have been as smooth had Yamaichi been bailed out, though Ghosn seems like a leader that would still have done well relative to others.

Another important point is that Ghosn was specifically requested by Nissans CEO, Hanawa, and therefore had the support of the top-management. This probably gave him a lot of leeway to choose his own approach to the turnaround.

In all, the level of resistance to change that Ghosn encountered from middle-managers, was inevitable. The underlying cause of this resistance was fear of losing status, job, pay or face. However, Ghosn did a very good job enlisting support from middle and lower levels of the organization (he already had top-management’s support). 6

Consequently resistance to change was mitigated and instead engaged and motivated employees was doing their best to come up with a revival plan for Nissan. Nevertheless it seems quite apparent to me that things would have not run as smoothly a few years earlier, since the crack of Yamaichi served as an eye-opener for the employees and facilitated a willingness to change due to a fear of losing their jobs.

Ghosn’s approach to gaining support from the organization scores 92% which is very high and leaves little room for improvement, cf. Appendix A.

4.2 Evaluation criteria #2: Communication

“The single biggest problem in communication is the illusion that it has taken place”

– George Bernard Shaw

From the very beginning Ghosn was focused on communicating clearly with the organization. He took a number of steps to ensure that communication both from him to the organization but also within the organization would be direct and true. Very early he stated three principles (Transparency, Execution and Communication) of management that I think shined through in all his communication. It was a very clear statement of “how we do things in Nissan” and it was aimed at changing the culture of the company. Below I will go through what I see as the main communication contributions Ghosn made.

Unlike any prior manager, Ghosn practiced “management by walking around” which must have been a very effective way for Ghosn to understand the employees at the lower to middle levels of the organization and vice versa. As a consequence of this, a good foundation was created for further interactions. At the same time it served as a way for him to set a good example for other managers. Further, he discussed ideas for turning Nissan around with several hundred managers which had two positive outcomes; one that he got a lot of relevant input for the strategic changes needed; two that the problems regarding the vertical communication in the organization got addressed. This way, Ghosn was able to initiate an organizational culture change where employees from top to bottom got more in touch with each other’s work and issues. The disadvantage of these two actions is that it is very time consuming, but when it comes to building trust and respect there are no shortcuts and I think he made an excellent choice in doing this.

The organization reaped another benefit from the establishment of the CFTs mentioned in the section 4.1, namely that it led to a structure with permanent cross-functional departments that served one product line. This reorganization addressed the horizontal communication problems that Ghosn had encountered throughout the organization and the staff began to focus on total business success rather than keeping a narrow focus on their own department. Another structural change was the matrix-structure that was implemented for higher-level staff to improve transparency and communication which was in line with his three principles of management. 7

For an international company like Nissan with a global strategy, a matrix structure seems to be the right way to go, precisely because of its dual focus on both region and function. Further it gives you the capability to combine efficiency with effectiveness, two things that Nissan really needed for instance in regards to purchasing (efficiency) and responsiveness to customer needs (effectiveness). The disadvantage is of course the two-boss system that can create confusion and power struggles. However, given the horizontal communication problems, it again seems to me that Ghosn made the correct decision with the matrix structure.

One area where Ghosn didn’t as well as in the ones above, was with the communication of four main focus areas namely (1) development of new automobiles and markets, (2) improvement of Nissan’s brand image, (3) reinvestment in research and development, and (4) cost reduction. I consider all four areas very important, however (1) seems to require a lot of cash and at that point in time Nissan was very short on liquid capital (p. 546) so maybe one could challenge this focus area on the short term. More critically I find it that no timeframe and no quantifiable goals have been attached to these four areas, thus making them non-measurable. One could argue that there is an implicit measure of success and time, namely Ghosn’s goal of turning Nissan profitable within two years. I still would have preferred if it had been stated more explicitly like in the “Nissan 180” plan that was measureable and very easy to communicate.

Due to his practical approach to leading and, especially leading by moving around and the discussions with managers, it seems he earned the respect and trust of the organization at all levels.

His approach to communication scores 88% which is high, but if he had attached some measurable goals to the focus areas it could have been higher, cf. Appendix A.

4.3 Evaluation criteria #3: Execution

“However beautiful the strategy, you should occasionally look at the results”

– Winston Churchill

It is one thing to come up with a new strategy but it is quite another to execute it. Often good strategies fail because of inadequate focus on execution, or inadequate capabilities of the people in charge of the execution. Ghosn, however, was experienced in the field of turnarounds and was focused on the execution from the beginning. Some of the points made in section 4.2 above, makes sense to mention again here, since they were part of the execution strategy.

When Ghosn chose “managing by walking around” he did not only do it to connect with – and understand the staff. It was also a substantive action that allowed him to become a role model. 8

The same goes for the hundreds of discussions he had with managers that, besides giving valuable input to the strategy change, served as a symbolic actions that conveyed a message to the other executives: get in touch with issues facing middle and lower management!

Ghosn seemed very focused on execution and within one month he had established the nine CFTs. This was a strong signal to the organization that change was coming and actual changes had already been made.

In extension of the matrix structure mentioned in section 4.2, Ghosn put emphasis on that every person should be responsible and was to be kept accountable for their actions. This was backed up by a policy of 100% accuracy in all reporting. By disciplining bad data harder than misjudgement he stimulated the risk-taking behaviour needed to change the organization. Further he introduced a performance based incentive system and by doing so, he moved the focus to towards performance which was what Nissan needed.

Of course Ghosn wouldn’t have been able to execute the strategic changes without the support of the organization, so many of the points in section 4.1 is also relevant here. Especially his ability to engage and motivate the employees in the decision process seems like an excellent idea in terms of execution.

Overall Ghosn’s approach to execution scores 92% which is very high and leaves little room for improvement, cf. Appendix A.

4.4 Evaluation criteria #4: Manage in a foreign culture

“Seek first to understand, then to be understood”

– Stephen R. Covey

Ghosn had had experience managing in many different cultures before coming to Japan and seemed like the right man for the job. Maybe this was why he decided to come to Japan with very little knowledge about the culture but with an open mind, ready to learn. I agree very much with this approach, it is always a good idea to seek first to understand, then to be understood.

It is quite obvious that Ghosn encountered a lot of cultural differences between his and the Japanese culture. The concept of consensus decision making (murashaki) the promotions based on seniority and education (Nennkou-Jyoretu), the extreme risk-aversion and the lack of accountability was probably far from what he was used to. However, he felt that the cultural differences could work as a catalyst for rapid innovation. He laid out a very respectful principle that no leader should try to impose his/her culture on another person who was not ready to try it with an open mind and heart. This was part of his strategy to turn the company around not by using his formal power, but rather by understanding and working through Japanese culture. However, it is a good idea to talk frankly about the cultural aspects that needs to change and follow up with action quickly. 9

Ghosn laid out the three principles of management mentioned earlier, which was very much in line with what you would expect from a western culture, and started practicing them from the beginning. Further he sought to remove the parts of the culture that was holding the company back, such as keiretsu investments, murashaki, nemawashi, Neenkou-Jyoretu. It actually seems that he was removing most of the cultural items mentioned in the case. I think this was a wise and bold move, since these were the underlying causes of many of the problems within the organization. One culture, however, he didn’t want to change was the Japanese culture of being well-organized, making the best of things and being very respectful to leadership. Rather, he used this to implement his strategy quickly.

In conclusion I would say that the cultural differences between Ghosn and the Nissan organization were very pronounced and the culture was a hindrance more than a helper for Ghosn and he had to change quite a lot. However, Ghosn took his time to understand it and tailored his strategy so that it would fit the best parts of the Japanese culture, this way Nissan was able to change fast.