ABSTRACT/ EXECUTIVE SUMMARY The report comprises of the analysis of the case under the heading ‘ Carlos Ghosn as the CEO of Nissan and Renault
ABSTRACT/ EXECUTIVE SUMMARY
The report comprises of the analysis of the case under the heading ‘ Carlos Ghosn as the CEO of Nissan and Renault : Can he rework the Nissan magic’ . We have presented our findings under respective headings – Problem statement , Case Analysis, Recommendations and Alternative solutions with the support of journals and models from organization change perspective, which enabled us to blend the concepts with the assigned case study. Through such an explorative study we were in a position to comprehend the challenge faced by Carlos Ghosn to bring about the required changes , ensure the employees embrace such change and be in a position to sustain changes in the long run within the organization. His ability to identify key performance areas which required attention , proved detrimental to the success of the organization. We have incorporated the use of Kotter’s model consisting of eight steps as part of our recommendation, considering the steps undertaken by Carlos Ghosn to bring about the required changes in the organizations and McKinsey 7s model as an alternative solution which consists of seven elements with are integrated with each other.
The case revolves around changes experienced by two automobile companies Renault and Nissan and steps undertaken by Carlos Ghosn in order to survive in the industry. Renault is a French based Automaker, excluding the US, having its presence in all chief automobile markets in the world. Nissan is the third largest Japanese automobile company. In the late 1990s, Nissan was under huge losses. In 1999, Renault primarily attained 36.8% shares of Nissan and entered a strategic alliance with the Japanese company. This marked the Renault-Nissan Alliance Merger.
Nissan-Renault being automobile firms are led by Carlos Ghosn and Louis in 2002. Later 2002, Carlos Ghosn became the CEO for both firms, with the Chairperson being Louis., Nissan had its strength based on its absolute manufacturing and the designing of material product whereas on the other hand, Renault being a French firm was larger in terms of it engineered quality. The main aim of Carlos was to blend these strengths of both the companies and use a common base to penetrate the competitive market with an upcoming product from the merged companies that brought in many advantages to the alliance which helped them indirectly to increase their procuring influence on the market. Considering cultural differences, Carlos being unaware of the cultural traits in Japan, was eager to faceoff with the values and the ethics of the Japanese rather just having a predetermined belief. The importance of culture was witnessed by Carlos at many instances which emphasized the need to adapt to the delicate characteristics of culture. This triggered Carlos to develop strategy of cultural diversity as a catalyst for the alliance rather a point of deviation among the organizational unity. This was not as easy as interpreted by Carlos. He faced many challenges for cultural differences as he was trying to penetrate a part of western culture for operating Nissan.https://www.economist.com/node/757537
As, Carlos once said, “Difference in culture is never an obstacle to prosper and should be use as object to change”. as per the case
In this paper, the discussion will be centered on the motives for Nissan-Renault merger – organizational changes focused on the cultural differences; implementation of operational change to Nissan, how the new management can transmit the change to the employees and how the changes will be sustained.
The research would also answer questions on how Carlos’ efforts made Renault-Nissan Alliance to take advantage of collaborations; the benefits that the Alliance provided to the two merging companies & also the challenges that the Alliance may face in the immediate future.
Mr. Ghosn diagnosed that the problem that Nissan had were – lack of profit-orientation, lack of customer focus, no co-ordination of work, no shared vision and no sense of urgency.
The Renault Nissan case is a motivating business retrieval, but also a study of how to work in a merger & of how a French based leader can jiggle up a deteriorating Japanese company. Mr. Ghosn plays down the cultural aspect: “I don’t know what a Japanese company is,” he says. As with anywhere else, “you just get bad ones and great ones.” He defines his objective at Nissan as no less than turning it into the best-performing car company in the world. He is off to a good start. Last year, he more than tripled the operating profit margin to 4.75%, bringing him over halfway to meeting his target of 8% by 2005. The real challenge now, says Mr. Ghosn, is to change attitudes at Nissan, from design through to sales. About the first thing he noticed at the company, which had been making losses year after year and losing domestic-market share for a generation, was that nobody seemed to take responsibility when things went wrong. The first thing Mr. Ghosn did was to form “cross-functional” teams to work on ways to break down barriers between departments. “It’s at the interstices between functions that you get real creativity,” he notes. When he first spelled out his recovery plan to senior managers, he met pockets of resistance, but decided to ignore them. Then he began to see changes as more executives accepted that the plan. By 2010, Renaults and Nissans will be made of essentially the same building blocks, even though they will look different. This platform-sharing is expected to bring huge savings.
During the phase of the Nissan-Renault merger, Carlos Ghosn stated that the moment he takes up the responsibilities in two different companies, he would be blending the strengths that he witnessed among the people, at the respective companies, i.e. “innovation excellence of the French & dedication towards manufacturing of the Japanese”. (taken from the case, pg7, 3rd para)
Mergers can also be termed as “Planned Changes”. So, what are the goals of planned change? First, it seeks to improve the ability of the organization to adapt to changes in its environment & Second, it seeks to change employee behavior. Who in organizations is responsible for managing change activities? The answer is change agents. Change agents can be managers or nonmanagers, current or new employees, or outside consultants. (from OB text book, 580 CHAPTER 18 Organizational Change and Stress Management)
As per the case, there had to be many hardships which were to be faced by the employees and the company, since both the parent companies had diverse roles individually. As per the findings from Hofstede, France was high in terms of equality, where equal rights were distributed among male and female counterparts, on the other hand, Japan was high in masculinity scoring as high as 95%. (https://www.hofstede-insights.com/product/compare-countries/)
“Japanese society is typically a masculine one. Males occupy the important positions (such as managers and directors) in companies and they are not used to collaborate and communicate with females, male employees also would not appreciate to be supervised and managed by a woman. This limits the diversity of the organization, because decisions are based on thoughts from people with similar background.”
These factors play a vital role in assuming the after implications of business expansions such as mergers, since two completely different companies with different backgrounds will be coming in a collaboration.
Other factors which would be coming up as a challenge for the employees in the merged companies or the management would be: Cultural change, Power Distance senior level management changes, Understanding local markets of both companies.
Carlos changed the working culture at Nissan. Where the employees where only concentrating over the production as per the instructions of higher management, he changed the working culture by encouraging more and more employees to contribute towards the success of the company by coming up with newer ideas. Work-Culture change was also introduced to improve the efficiency of the employees and make accountable and responsible one.
Nissan used to have high hierarchical structure and power distance within the organization, in which feedbacks were usually channeled through peers. It was almost impossible for middle managers to contribute a plan for the company’s future. Organizations having such high-power distance criteria are challenging enough to change the organizational culture.
Japan carries their own market strategies for procuring and manufacturing automobiles, similarly as Renault has its own market strategies in France. The main aim of mergers lies in combining the resources of both the companies and coming up with a product which would be beneficial for both the companies.
The cultural change brought in by Carlos, was a bottom up approach, where employees where actively made to participate in the day to day functioning of the company in Nissan. It gets difficult for a cultural based company to adapt to the new upcoming changes.
As per Burnes (2001, pp. 280; 296-297) these steps are to be taken into consideration as a process instead of a checklist. He also conserved that growing approach is the belief that change is never ending, no beginning and full of process which are uncertain to the outcome of arranging an organization to its changing environment.
This model of change as said, advocates eight steps in the process of change:
Considering the first step of Kotter’s model there is a need to increase urgency. By this way management endorse for a requirement of change and start the change attitude and way of working in a fast pace. . As mentioned by (Calegari et al, 2015, P. 36), the heads are committed and able to motivate some of the faculties but not the others. In order to persuade , it is the leader who leads the campaign by meeting each department explaining the benefits and success having the full participation of the employees , this includes the losses and consequences if they fail to accept the change . He carefully converts the negative emotion into employee’s opportunity and the transparency that there will be more work adding to their current load is also explained.
.After the first step the management can create a guiding coalition consists of leaders taken from different ranks, head of the departments that fall under a group or individual with the ability to persuade, influential and full of knowledge, enough to lead and develop a sense of trust and team work. They meet and making sure that the communication of information is cascade down to the last stake holder and receives feedback from them bringing it to the management (Calegari et al, 2015, P. 37). This is supported by (Self et al., 2007) that change strategies supported by the leader have a greater chance having the support of the subordinates that will lead to better acceptance. Having the right vision is essential in a change process for it is one of the building blocks that drive the new goal of the organization.
A clear and sensible vision will prove to be helpful for the employees to understand and act accordingly at the same time encouraging them to act (Appelbaum et.al. 2012, pp. 764-782).
One of the causes of Nissan’s state described in the Nissan Revival Plan (NRP) was no shared vision or common long-term plan. Nissan’s main problem was to make sure its manufacturing performance leads to achieving profit (Stevens 2008, p.20). Creating NRP based on a single goal : to develop business and reduce costs, enabled him to develop a vision to improve the situation of the company.
The catchword of the NRP was ‘reduction’: it was planned to reduce workforce by 14% – around 21,000 jobs, reduction in manufacturing capacity by 30%, purchasing costs by 20%, decrease number of suppliers and debt reduction.
Secondly, as the result of Nissan – Renault alliance, technology transfer i.e. transfer of knowledge and skills takes place between the partners possessing different cultural and economic backgrounds. Both the brands maintained their individual identities but agreed to share what they are known for i.e. Renault for its design and management and Nissan for its manufacturing and engineering (Stevens 2008, p.23).
Communication proves to play a vital role in organization change as it results in employee belongingness to the organization and encouraging employee participation when importance of change is communicated to them, they tend to more likely to accept change. Thereby, indicating a correlation between employee satisfaction and management communication (Appelbaum et.al. 2012, pp. 764-782).
One of the main problems identified by Ghosn was lack of cross-functional teams in Nissan’s former management structure. With implementation of such teams, it was attempted to improve communication between the different departments of the company and facilitate decision making. Carlos encouraged employees to speak out and have one to one conversation with the employees, which led to employees accepting such a change (Stevens 2008, p.21).
Kotter suggests that “the main job in this step is to empower action and make it easier for change action to occur, generally by removing obstacles to the change and by rewarding behaviors that support and reinforce the change. This process involves two key activities developing reward and recognition systems that reinforce efforts and outcomes consistent with the change and, concomitantly, highlighting actions of influential participants that support the change”.
(Calegari et.al.2015, pp. 31-43)
In Japan promotions were given on merit base. This became the key weakness in this case. As it was on seniority-based. Instead of firing employees Carlos Ghosn decide to replace it by performance based and merit-based incentive system.
Short-term wins help to demonstrate the viability of change and to build momentum. Kotter (1996, p. 123) identifies that short-term wins need to be visible; unambiguously successful; and clearly related to the direction of change. Although not all researchers consider short-term significant in all change programs (Ansari and Bell 2009, p. 159), they did play a significant part in the management of the Knowledge Management Program. The change team’s role involved less of the direct creation of short-term wins than in advertising the successes of those wins.
To bring about visible Quick wins Carlos Ghosn closed some plants while offering substitute jobs to the employee. Even further he reduced the platform from 24 to 12 which were used to manufacture cars in assembly plant. He closed 10% of the firm retail outlet and 20% of dealer partners to reduce selling and marketing expenses. All this resulted in profit for the company of $1.5 billion for the next six months.
This step centers on consolidating the change and continuing to move forward by not allowing complacency to set in. Indeed, change efforts often fail because participants revert to their prior habits, failing to continue to implement the change. Consequently, it is especially important that change continue to be reinforced and activities directed at the change effort continue to be supported and encouraged. Often, this requires a return to creating a sense of urgency or re-emphasizing the critical need for the change. (Calegari et.al.2015, pp. 31-43)
In Nissan-Renault case, cross-cultural merger raised several encounters. By sharing platform and engineering capabilities Mr. Goshn aimed at cost saving. The employees at Nissan were against to adopt these changes. Initially they agreed and were convinced over the superiority of platform
In this stage, the goal is to institutionalize the change and anchor it in the organizational culture. Research on the long-term effectiveness of organizational change efforts paints a dismal picture of the sustainability of those efforts. Therefore, this stage is perhaps one of the most important in the model. (Calegari et.al.2015, pp. 31-43) It has been noted that large scale change can take a long time to complete, and that this is particularly true in larger organizations (Kotter 1996, p. 132). New messages were being sought to maintain organizational interest in the change. ”Whenever you let up before the job is done, critical momentum can be lost and regression may follow. Until changed practices attain a new equilibrium and have been driven into the culture, they can be very fragile” (Kotter 1996, p. 133)
Source: Calegari, Mary F.; Sibley, Robert E.; Turner, Marlene E. Academy of Educational Leadership Journal. 2015, Vol. 19 Issue 3, p31-43. 13p.
“McKinsey 7s model is a tool that analyzes firm’s organizational design by looking at 7 key internal elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if they are effectively aligned and allow organization to achieve its objectives.” (Ravanfar, 2015) The key point of the model is that all the seven areas are interconnected and a change in one area requires change in the rest of a firm for it to function effectively. (Singh, 2013)
Mr. Ghosn revamped many strategies at Nissan after being appointed the CEO. He formed strategic alliance with Renault to help get rid of its short-term problems. He also made changes in the cost strategy of the company by making disinvestments in its subsidiaries and adopting low cost strategies. He switched gears of the competitive strategy of Nissan by opening up new plants in North America where it had been facing intense competition from its other competitors. (Susini, 2004)
Ghosn realigned the organizational structure of Nissan to help it accomplish its objectives and attain profitability. He introduced Cross functional integration and teamwork and made workers assume responsibility and accountability. He induced a culture of decentralization where clear goals and objectives for each teams were assigned. (Ghosn, 2002)
He also changed the business and technical infrastructure of Nissan. Regular meetings were put in place to overcome any resistance to change within different departments. For instance, he Implemented a 100 key word dictionary to be used throughout the organization so cultural barriers could be dealt with. He ensured the NRP was being implemented in the right way by bringing in quality control teams throughout the organisation. (Vuori, 2015)
Mr. Ghosn Ghosn applied his democratic and transformational leadership skills to boost employee morale and shape an aggressive corporate culture. By means of cross-departmental teams and management strategies, he created inter-departmental synergy that added to the benefits of cooperation, and subsequently devised a reform strategy and action plan based on the company’s current corporate conditions and position in the industry. (Lu et al., 2012)
By introducing Performance based and merit based system, Mr. Ghosn motivated and rewarded competent employees. Instead of just sacking people, jobs were cut through retirements, pre-retirements and golden handshakes He also made sure all employees were a part of the change process in the company making them feel a part of the organisation. (Millikin and Fu, 2005)
Mr. Ghosn promoted Cross functional skills amongst engineers and financial people. The entailed that both functions appreciated and new something about the other function. He also bought in new design engineers as well as a quality control team to improve and enhance their product offerings and quality. They saw a hike in their sales after they came in with new models and Mini vans. (Ghosn, 2002)
Introducing the NRP ‘through the whole organization He put forward the NRP as an ‘organizations collective effort’ involving thousands of employees at every managerial level. This ensured that all employees work with a common vision and goal of reviving Nissan. (Millikin and Fu, 2005) The NRP brought about clarity of objectives that would lead to the achievement of the vision. Ghosn brought about transparency with in Nissan as he invited the input of every influential individual including suppliers, ex-employees and dealers. By making English a common language throughout the companies he made sure that all the employees and employers were on the same page. (Zhantilessov et al., 2015)
Experience with implementing this model suggests that it has significant advantages. It provides clear and concise procedural recommendations focused on successfully managing and sustaining organizational change. Unlike other models, it explicitly focuses on both tangible behavioral aspects of change as well as the critical emotional factors that are inevitably engendered by change efforts. However, implementing the model can present some challenges.
There is no other alliance quite as deep as this in the car industry. Certainly, the industry needs new ways to do things. DaimlerChrysler is a takeover with deep problems, while the General Motors/Fiat tie-up, involving some platform-sharing, is far from solving either company’s problems. Alliances, however deep, are normally seen as sub-optimal, because they fail to rationalise assets. Mr Ghosn is determined to show that creative thinking can contradict that view.
Academy of Educational Leadership Journal, Volume 19, Number 3, 2015
Appelbaum, SH, Habashy, S, Malo, J, & Shafiq, H 2012, ‘Back to the future: revisiting Kotter’s 1996 change model’, Journal of Management Development, vol. 31, no. 8, pp. 764-782.
Stevens,M 2008, ‘Foreign In?uences on the Japanese Automobile Industry: The NissanRenault Mutual Learning Alliance’, Asia Pacific Business Review, vol. 14, no.1, pp.13-27.
Calegari, Mary F.; Sibley, Robert E.; Turner, Marlene E. Academy of Educational Leadership Journal. 2015, Vol. 19 Issue 3, p31-43. 13p.