The logic of alliance Value Creation model on case study Renault and Nissan - Assignment Example

?Introduction Renault and Nissan formed the alliance in 1999. Since then the two companies have been able to combine their assets synergistically in order to maximize the productivity of both companies. The combination of two organization structures has enabled both companies to address their individual shortcomings. Nissan has been able to address the financial problems while Renault has been able to enhance market reach. In this manner the alliance has proved to be a success for both Nissan and Renault. However the two companies are still facing challenges in creating an organizational culture that can maximize cooperation between the human resources from the two companies. In order to create the maximum value from this alliance, Nissan and Renault need to share their core competencies to synergistic effects. This will enable both companies to improve their specifications and standards in a continuous process so that the competitive advantages of both companies are made sustainable. Strengths and weaknesses Nissan’s strength is the worldwide market share while Renault’s strength is in financial management (Glover, 2006). By forming this alliance, both companies will be able to address these structural problems. In order to maintain its financial strength, the French car maker Renault has to access new markets and this objective is met by forming the alliance with the Japanese car maker Nissan. Both companies will be able to implement the practice of benchmarking which is defined as comparing an organization’s performance against the best practices in the industry. This alliance will enable Nissan to compare its financing strategies against those of Renault and thus identify the areas of improvement. Renault will be able to compare its product development practices with those implemented by Nissan. As a result both companies can improve their efficiencies in these operational processes and thus strengthen their competitive advantages. However in order to maximize the success of this alliance, both companies have to create a common organizational structure. In order to maximize the value creation from the alliance, both companies have to emphasize upon creating an organization design which will maximize cooperation between the human resources from the two companies. The main weakness is the different focus in each organization design. Nissan places strategic focus upon supply chain management while Renault’s strategic focus is upon product development. Therefore there are structural dissimilarities which must be addressed if the alliance is to enable Nissan and Renault to capitalize upon each other’s assets. The challenge in front of the management is to create a decision making process which will enable the human resources from both companies to coordinate their efforts so that there is no duplication. This can address the company-specific weaknesses. Nissan’s financial weakness can be addressed by importing the financial management practices from Renault. Similarly Renault can access additional geographic markets in order to maximize its market reach. However in order to meet the demand from additional markets, Renault has to focus upon supply chain management which is Nissan’s strength. Nissan has embarked upon a cost-cutting initiative to create greater demand for its products. If Nissan can reduce its cost of operations, then it will be able to price its automobiles more competitively. Because of its financial management practices, Renault has been successful in maintaining demand for its products in the market that the automaker currently operates in. However demand in these markets is shrinking. Therefore Renault needs to access additional markets in those regions which have growing demand. By forming the alliance with Nissan, Renault has been able to meet this objective. By forming this alliance, Renault will be able to access those markets that Nissan operates in. As a result, Renault will be able to sell more cars and enhance scale economies. Because of the high costs of new product development in the auto industry, auto makers have to reach scale economies and the challenge is to maximize the volume of unit sales. The main logic of forming this alliance is that Nissan and Renault will be able to share strengths. Nissan’s cost-cutting measures will be strengthened through benchmarking against Renault’s financial discipline. Renault’s manufacturing efficiency will be enhanced by being contextualized in the production management techniques from Nissan. This is one of the key success factors of operating in the industry because supply exceeds demand. Although experts expected the recent financial crisis to weed out the weaker competitors, this has not happened because of financial assistance from the national governments. As a result production capacity of the industry has remained the same while demand has not. Therefore it is one of the key success factors for Nissan and Renault to implement cost-cutting measures. However cost-reduction involves restructuring which is a weakness for both Nissan and Renault since they do not have core competencies in managing change. Without incurring the extra costs of hiring change management consultants, Nissan and Renault can capitalize upon this alliance to facilitate the restructuring process. Currently Renault’s weakness is in the limited market reach. By forming the alliance, Renault will be able to access the markets of South America and East Asia. Nissan’s most critical weakness is the lack of strong financial controls. By benchmarking practices from Renault, Nissan will be able to consolidate its financial processes globally in a manner that is most effective. As a result the operational processes of both companies will be positively affected. If Nissan and Renault can merge their organizational structures to create a common platform, then the companies will be able to share their assets to synergistic effects. The value creation process from the alliance can only be maximized if the companies can share their assets to synergistic effects. Therefore Nissan and Renault must attempt to realize as many synergies as possible. This involves restructuring to create a common organizational structure which will enable the human resources from both companies to coordinate their efforts to the maximum extent possible. Value chain analysis The value chain of a company can be defined in terms of primary activities and secondary activities. A value chain analysis will enable Nissan and Renault to create the common organizational structure which will maximize value creation from the alliance. Inbound logistics involves creating a cost-efficient structure for managing materials that are externally sourced. In order to address the financial weakness, Nissan has to streamline the logistics process so as to reduce the costs incurred in this area. The auto maker can meet this objective by capitalizing upon Renault’s logistics structure. Renault can improve the efficiency of its manufacturing operations by importing Nissan’s quality practices. One of the most important sources of value creation for Renault is the access to additional geographic markets. The limited market reach is one of the main weaknesses facing Renault and therefore accessing additional geographic markets is one of the key success factors. However In order to meet the demand effectively, it has to address the quality of operations. Nissan has a worldwide reputation for best practice and performance in quality of engineering. Renault can incorporate this resource into its own value chain. Renault has a good reputation for innovative design. Nissan can incorporate this resource into its own value chain. The result is a common operational framework which maximizes manufacturing efficiency. The value creation is maximized from the sharing of technology and design features. Nissan can offer the latest technology through quality of engineering while Renault can offer the innovative designs (Renault.com, 2011). The result is an alliance of technology and design so that manufacturing costs are reduced in a continuous improvement process. Because of the high competitiveness in the industry, both companies have to create value by reducing cost of operations so that the product segments can be priced more competitively. By forming this alliance, Nissan and Renault can combine their core skills in technology and design features of operations and thus add to the common value chain. The alliance will create the scope for joint distribution and thus create additional value in outbound logistics. The Renault-Nissan Info System (RNIS) has been formed to integrate the worldwide distribution systems of both companies (Datamonitor, 2005). This facilitates cost reduction in outbound logistics. By creating a joint platform for distribution, both companies are able to meet the demand in their respective markets. This is a critical success factor for Renault since its logic for contributing to the alliance is to enhance market reach. As mentioned before, this alliance enables the French automaker to access the markets of South America and East Asia. Unless Renault can create the structure of outbound logistics to meet the demand in the new markets, it cannot meet the additional demand in these markets. This is also one of the key success factors for Nissan because of its contribution to the cost-reduction measures. Since Renault’s dealerships will be selling Nissan’s cars, Nissan can reduce the costs of outbound logistics in Renault’s markets (Renault.com, 2011). The activities of marketing and sales are also benefitted from the alliance. The alliance creates joint marketing agreements which enable Nissan and Renault to access those markets in which each company has limited or no presence. Both companies have market weaknesses addressable through the alliance. Branding strategies can be shared to maximize market acceptance. For example, the Renault brand was not popular with the Japanese customers. Therefore Nissan re-badged the cars as Interstar (Lee and Rajdeep, 2004). Each company possesses core skills in marketing and sales specific to their primary markets. The alliance facilitates the sharing of these skills so that market presences of both companies can be maximized. Therefore marketing and sales activities are made more effective through the utilization of shared assets. The alliance enables both companies to address market issues more effectively as the joint marketing agreement leads to the sharing of marketing capital. Nissan and Renault can capitalize upon this alliance to extend their marketing and sales to those markets in which they have limited or no presence. One of the support activities is procurement which can be outsourced to the suppliers. The role of suppliers has changed in the auto industry in terms of taking on more responsibility for technological development in areas such as braking systems, transmissions, electrical and electronic equipment (Reed, Lemak and Mero, 2000). Therefore the requirement is for greater collaboration in procurement. Increased collaboration in procurement activities will lead to lower costs in both areas of new product development and manufacturing. The alliance leads to greater collaboration as the Renault-Nissan Info System provides both companies with greater information on suppliers of parts so that they could be shared. Sharing of suppliers will lead to reduced procurement costs because of increased cooperation on technology and components across suppliers of both companies. This cooperation leads to increased flexibility enabling Renault and Nissan to meet the demand variations in their respective markets more effectively. Technology development is another of the support activities in the value chain analysis. In the present instance, the alliance will have immense value for Renault and Nissan in the form of coordinating technology development in fuel efficient cars. Currently the two most important forces of change are technology and environmental concerns (Gosling and Mintzberg, 2003). Therefore car makers have to develop fuel-efficient cars that will satisfy the increasingly environmentally-conscious consumers. The alliance will enable Renault and Nissan to create common technology platforms so that the number of products could be rationalized. This will greatly reduce the cost of operations which is one of the key success factors in the auto industry. Support activities in human resource management will be critical in terms of creating an organizational culture that will enable human resources from both companies to coordinate their activities in order to avoid duplication of efforts. This is one of the key success factors in optimizing the infrastructure which will maximize value creation from the alliance. Capabilities and resources The critical organization capability to emerge from the alliance is new product development. As mentioned before, technology along with environmental concerns are the most important influencing factors in the auto industry. This is forcing auto makers to manufacture smaller and more fuel-efficient cars (Fang and Kleiner, 2003). This involves new product development in which costs can spiral out of control. By creating a joint platform for new product development, the alliance enables Renault and Nissan to lower the costs in this regard. This makes both companies more competitive. New product development also helps to differentiate car makers from one another. For this reason this is the critical success factor which is addressable through the alliance. By forming this alliance, Renault and Nissan have been able to develop shared platforms and knowledge which lower the costs of new product development thus making both companies more competitive. The shared platforms are enabling Renault and Nissan to develop capabilities in electrical engineering. There is transfer of knowledge between the two companies facilitating scale economies (Gottfredson and Aspinall, 2007). As mentioned before, new product development costs are extremely high. Therefore reducing the extent of scale economies is one of the critical organizational capabilities. The alliance enables Renault and Nissan to meet this objective through sharing knowledge thus maximizing manufacturing efficiency. The critical success factor is to develop a competitive advantage that is sustainable. This is exactly the long-term objective met by the alliance. As the two companies share assets, they enhance their capabilities in technology and design and thus optimize the manufacturing process in a continuous improvement process which makes the competitive advantage sustainable. Given the high competition in the auto industry, the alliance has to continuously create new product segments that are not only affordable but also have the technology and designs. These are the capabilities which are created in the alliance. Tangible resources of the alliance involve synergies in technology and operations. The parent companies possess expert personnel who could combine their skills to maximize productivity. Manufacturing processes and technology possessed by the parent companies also contribute to the tangible resources of the alliance. The shareholders have elected Carlos Ghost as the CEO of the alliance. Because the two companies share a common CEO through the alliance, transfer of staff between the two companies can be coordinated more effectively. Nissan and Renault have considerable levels of human resources which can be transferred between them to facilitate the sharing of technology and operations. Two subsidiary companies have been formed: the Renault-Nissan Info System (RNIS) and the Renault-Nissan Purchasing Organization (RNPO) (Nissan Motor Company, 2004). These common organizational structures are resource-intensive in terms of enabling the alliance to pool resources in order to maximize the productivity in their respective areas. The intangible resources are branding and expertise (Hill and Jones, 2007). Both companies in the alliance have strong brand equities in their respective markets. This enhances the profitability of the alliance. The alliance leads to a combined strategic direction which maximizes the profitability of both companies. This makes both companies strong by creating desirable products which create a bold brand. Knowledge sharing is also one of the intangible resources created by the alliance. The transfer of knowledge between the two companies creates the platform for continuous product improvements. The alliance gives Nissan and Renault the brand power that will maximize their sales in the new markets. The alliance creates new market opportunities for Nissan and Renault. In order to capitalize upon these opportunities, the car makers must have adequate brand power. This is one of the critical intangible resources which is created by the alliance. The increased brand power leads to increased worldwide market share and as a result profitability of the alliance is maximized. The important outcome from the alliance is the enhanced brand power for both companies as they capitalize upon each other’s brand names. Problem and recommendation Although the alliance has been successful in creating critical capabilities and resources, it is still facing a problem in creating a common cultural platform. A common organizational culture is required to maximize the coordination between the human resources of the two companies. Unless this coordination can be improved, synergies cannot be realized to their fullest extent. Therefore the two companies have to formulate strategies on how to create a common organizational culture that will enable the alliance to develop human capital of its own. Given the high competition in the auto industry, Renault and Nissan have to base competitiveness in the organizational culture so that it is sustainable. The alliance must have an organizational culture of its own separate from the individual organizational cultures of the two companies. In order to address this problem, Renault and Nissan should involve their HR managers. The HR managers from the two companies should share their knowledge about the cultural uniqueness of each company so that the uniqueness of each contributes to the alliance’s organizational culture. Because the common organizational culture involves characteristics from both companies, the personnel from Nissan and Renault working jointly will feel comfortable in this organizational culture. This will have a positive effect on motivation leading to enhanced productivity. HR managers can be involved to develop programs which will specify the job descriptions for personnel transfers. This will ensure the development of adequate controls. Controls are needed to ensure that the definition of personnel productivity for the alliance is aligned to the strategic direction set by the management. The alliance should have its own criteria for measuring performance. This will address the cultural conflict to some extent. The importance of developing training and development programs cannot be stressed enough. The personnel from the individual companies should be trained cross-functionally and cross-culturally so that their contributions to the alliance’s activities can realize synergies across major functions. Cross-company teams should be formed in different areas such as purchasing, R&D, IT systems, platform-sharing, manufacturing and distribution. Inasmuch as the strategic direction of the alliance is ensuring continual improvement, the cultural emphasis should be structured accordingly. The cultural uniqueness of each company has to be preserved. This maintains the motivation of the cross-company teams. The focus should be upon the transfer of knowledge between the two companies. This will contribute to management technologies and the sharing of best practices. Conclusion Renault and Nissan have formed the alliance to realize synergies in value creation. The alliance has enabled both companies to launch joint activities which have cut the costs of operations. In this manner the alliance has made both companies more competitive. Nissan’s financial weakness has been addressed while Renault’s market reach has expanded. The alliance has led to the sharing of knowledge and best practices thus leading to product improvements. The auto industry is in a constant state of change driven by competition and the alliance enables Renault and Nissan to develop a competitive advantage that is sustainable. The value chain of the alliance creates capabilities and resources that enhance the operational processes of both companies. In this manner the alliance has enabled Renault and Nissan to add to the value creation process. References Datamonitor, 2005. Company profile. Nissan Motor Co., Ltd. SWOT Analysis. Fang, S. and Kleiner, B., 2003. Excellence at Toyota Motor Manufacturing in the United States. Management Research News, 10(2), pp.116-122. Glover, M., 2006. Quality partnership. Automotive Engineer, 31(1), pp.20-28. Gosling, J. and Mintzberg, H., 2003. The five minds of a manager. Harvard Business Review, 11(3), pp.54-63. Gottfredson, M. and Aspinall, K. 2007. Innovation vs. complexity. Harvard Business Review Aug. 11(3), pp.62-71. Hill, C. and Jones, G. 2007. Strategic management theory: an integrated approach. 3rd ed. New York: McGraw Hill/Irwin. Lee, R. and Rajdeep, G., 2004. Strategic responses to new technologies and their impact on firm performance. Journal of Marketing, 68(4), pp.54-59. Nissan Motor Company 2004. Annual report for the year ended 30 March 2004. Nissan Motor Company, Tokyo. Renault.com, 2011. The Renault-Nissan Alliance. [online] Available at: http://www.renault.com/en/groupe/l-alliance-renault-nissan/pages/l-alliance-renault-nissan.aspx [Accessed 20 April 2011]. Reed, R., Lemak, D. and Mero, N., 2000. Total quality management and sustainable competitive advantage. Journal of Quality Marketing, 5(1), pp.34-38. Read More