Nissan before Ghosn - Essay Example

Introduction Nissan was always more than just a successful company to Japan. Established in 1933 it became a symbol of industrial perfection in the 1960s attracting lots of other car manufacturer's envious glares. However, things were not always as good for Nissan as they are now. In fact, the company had its hard times in the 1990s, when it was not able to compete with more successful manufacturers like Honda and Toyota. Moreover, the situation was so bad that it was perceived the glorious days of Nissan were gone forever: the firm was "strapped by $22-billion in debt, inflated supplier costs, and new product development that was at a standstill"1. It seemed like no one would be able to revive the company. In 1999 Renault has bought a 37% share of Nissan and announced the merger between two companies. Investing $5,4 billion in Japanese manufacturer falling quickly into the abyss was taken as more than just unwise by skeptics. Nevertheless, executives of Renault were optimistic about the deal. Carlos Ghosn was sent to head the restructuring of Nissan by Renault in June 1999. "Ghosn slashed costs and laid off employees, but also instituted a sweeping reorganization of the entire company, announced an ambitious slate of new vehicles and promised that if Nissan was not profitable in 2000, he and his entire managerial staff would quit"2. Eventually Ghosn has kept his promise and became a CEO of Nissan in 2000. Nissan before Ghosn To analyse changes implemented by Ghosn one should look into the past of Nissan trying to grasp the essence of the company before merger with Renault. Generally, it was far from its golden age: Nissan had lost Japanese market share for 27 years in a row, and was operating at 50% capacity, with far too many suppliers, constant goal changes, poor accounting data regarding product line profitability (later found only 4 of 43 models were making a profit), and goals generally lacked quantitative specificity on amount (eg. "Build a quality product"), timing, or priority.3 The company was dying under the traditional Japanese management. But what is a traditional Japanese management There are about five main components that form the Japanese management, that is: excellence in manufacturing management; quality circles as an innovative and motivating technique; statistical quality control as the key to productive effectiveness; a long planning horizon; and consensus decision making, as a form of participative management4. The Japanese style of management is all about quality. Due to the fact that a lot of American and European companies have successfully implemented Japanese strategies it should be noted that quality is really important when it comes to competitive advantage. Nevertheless, the mistake of Nissan was behind the belief that quality is the only important factor. This mistake was uncovered by Carlos Ghosn. Traditional Japanese management is based on the collective mentality. Individualism is valued less in Japanese companies than in European. Nissan needed drastic changes and cost reduction above all, however the Japanese mentality interdicted the implementation of extreme methods used by Ghosn. Additionally, overlapping net of distributors, which is also a typical feature of the Japanese management strategies, has played a mean joke to Nissan, forcing its distributors to compete with each other. Resuming the subsection, it can be concluded that traditional style of management was ineffective in Nissan. It was like dozens of feuding board members were not able to make an agreement. Changes made by Ghosn The impact made by Carlos Ghosn on the performance of Nissan was great. This Brazilian manager of Lebanese origin used a simple philosophy: "Be transparent and explain yourself in clear, lucid terms. Do as you say you are going to do. Listen first; then think".5 It may seem really simple, however it helped Ghosn to perform greatly in South and North American divisions of Michelin, and then in Renault and Nissan. According to Magee, he "may be the only person to have four verifiable corporate turnaround efforts on four different continents"6. So what exactly has Ghosn done He saved Nissan from bankruptcy by using drastic cost-cutting measures and by fully engaging the workforce from the ground up to stimulate creative innovation. How he did it Ghosn implemented a Western approach to management in a Japanese company. Let us look in detail on the measures taken by Carlos Ghosn to rescue Nissan. The focal point of Nissan Revival Plan (NVR) was cutting costs. Ghosn believed that the company spends just too much to be profitable. He demanded a cost reduction at level of 20% from managers. Under the NVR the company had to dispose of five factories in Japan and 21,000 of jobs. Was it painful It was almost like a gunshot in the head considering the traditional Japanese culture used to life-time job securities. Nevertheless, Ghosn was serious as never: the company had to reduce its manufacturing facilities and personnel significantly or become bankrupt. This was the first significant clash of two styles of management: Japanese and Western. However the plan on the reduction of expenditures went on. The next thing to do was to cut investments. It also should be stressed that this step was thought as ridiculous by Japanese managers: Selling shares in Nissan's affiliates goes completely against Japanese corporate practice. Many domestic institutional shareholders hold shares in both Nissan and its affiliates. Some of them worry that their shares in these affiliates will be worthless once Nissan walks away from them.7 Along with lowering expenditures related to investments, NVR included shutting down of 10% of Nissan dealerships. The reason was they competed with each other, generating additional costs. "When Ghosn asks the dealer who his main rival is, he hears a perturbing answer: two other Nissan dealers nearby"8. The suppliers net also needed restructuring made by Ghosn. In fact it was almost ripped apart because of its inefficiency and size. One of the most innovative techniques introduced by Ghosn to Nissan was th use of cross-functional teams. Before that Nissan employees have usually never worked with anyone outside of their departments. Cross-functional teams were used by Ghosn to change that. However, to make those teams performing well Ghosn needed a number of talented managers. And then there came another innovation: candidates for managers were selected from the employees of a company. Carlos Ghosn has put much effort into talent encouragement, typical to Western, but new to Japanese corporate culture, where employees get promotions based on age and rank, but not their performance. Finally, it should be noted that Ghosn has discovered a serious downfall of Nissan brand image: "cars sell for $1,000 less than comparable cars in North America, $380 less in Japan, and $667 less in Europe, because of Nissan's poor brand image."9 Japanese managers were so carried away with the quality of Nissan engines that they completely forgot about the style of Nissan cars. To improve brand Ghosn has created the international group mixing Nissan engines with Renault's flair for style. Implemented changes in design had to make distributors be able to sold cars along with Nissan's new pricing policies. Conclusion Five years later Nissan and Renault seem to be an extremely successful duet. "Nissan already enjoys the fattest margins of any big industry player That's a big change from 1999, when neither Nissan nor Renault struck anyone as a global contender."10 That can serve as a perfect example for the importance of implementing the proper strategy for the company. After all, the international experience of Carlos Ghosn worked out well for Nissan. References Denton, L.T. Keys, J.B. Miller, T.R. (1994). "The Japanese Management Theory Jungle-Revisited". Journal of Management, Summer. Available at http://www.findarticles.com/p/articles/mi_m4256/is_n2_v20/ai_15717297 Edmondson, G. (2004). "The Smoothest Combo On The Road". Business Week, October 4, international edition. Available at http://www.businessweek.com/magazine/content/04_40/b3902018.htm Ghosn, C. (2004). Shift: Inside Nissan's Historic Revival. Currency. Magee, D. (2003). Turnaround: How Carlos Ghosn Rescued Nissan. Collins. Thornton, E. (1999). "Remaking Nissan". Business Week, November 15, international edition, pp. 39-43. Read More