Effectiveness of Diversity Management in the Framework of Strategic Alliances - Essay Example

Management Theory and Practice Case Study Carlos Gosn: A Study of the Effectiveness of Diversity Management in the Framework of Strategic Alliances Name: Course Name and Number: Date: Executive Summary In 1999 an invigorated Renault and a faltering Nissan came together in a strategic alliance. The alliance was a bringing together of diverse corporate cultures. Carlos Ghosn of Renault was given the task of bringing about the strategic changes in the functioning of Nissan a given set of objectives in actual operating profit and reducing debt. Through inspired leadership and a set of strategic solutions to the problems in managing diversity and poor performance presented by Nissan Carlos Ghosn was successfully achieving the objectives that were set when he assumed charge of Nissan. Table of Contents 1. Summary : 4 2. Statement of the Problem : 5 3. Causes of the Problem : 6 4. Recommended solution for the Problem : 7 5. Justification : 8 : 1. Summary of Facts In 1999 Nissan was the third largest car manufacturing company in Japan and around the world. However in comparison to 1996, when Nissan had last made a profit its production was down, its market share was slipping, it losses mounting and utilization of production capacity was poor. There was an urgent need to find a suitable alliance partner, willing to invest in the company, if Nissan were to survive (p. 3). Renault on the other hand in 1999 had become lean through restructuring and downsizing was in a position to make strategic investments to further its future business activities. Renault mainly operated in Western Europe, from where it derived 85% of its revenue. Renault had limited activities in the important geographical regions of Asia, North America, and Eastern Europe. (p. 4). Investing in Nissan was attractive to Renault, as it provided Renault access to the important markets of Asia and North America due to Nissan’s active presence in these markets. However, there were major issues in the form of the organizational culture variances, diversity in the workforces of the two companies and management practices that would pose major problems in the smooth merger of these two car manufacturers and the changes that would have to be brought about in the corporate culture and management practices at Nissan (p. 5-6). After long drawn negotiations the alliance between Renault and Nissan came into being in 1999, with Renault acquiring 36.8% stake in Nissan. Carlos Ghosn from Renault was appointed as Chief Executive of Nissan and given the responsibility of leading through the restructuring and developing of Nissan focusing on the objectives of the Nissan Revival Plan (NRP) actual profitability by 2000, an operating profit greater than 4.5%, and reducing debt by 50% at the end of the fiscal year 2002 (p.7). The rest of the story is the manner in which Carlos Ghosn through inspired leadership achieved the seemingly impossible objectives by overcoming the hindrances to changes as a result of the traditional organizational culture and practices of the management of Nissan. The tools in this endeavor was the own commitment and leadership shown by Carlos Ghosn and the strategic use o cross functional teams to ascertain the required changes and convincing the top management of the need for these changes and bring about these required changes (p. 8). One of the key areas of change was in the purchase processes built on traditional industrial practices of Japanese industry, leading to centralized purchase. (p. 8-9). Another key area of change was reduction in production facilities that was not easy in the face of the traditional human relations practices at Nissan. (p. 10). Overcoming cultural diversity and communication difficulties were other issues that needed to be managed successfully. The consequence of the successful driving of change across cultural boundaries in Nissan, was that in the first year itself Nissan crossed the near impossible objectives set by the NRP and in 2002 Nissan achieved its highest ever profitability, which allowed it to halve its debts one year in advance of the target set for this by the NRP (p.11-13). 2. Statement of the Problem The corporate culture of Nissan was at the root of the problems faced by Nissan. This corporate culture meant that the business practices of Nissan were less directed to profit-making in a very competitive market place. The consequence of this was Nissan was becoming less competitive, losing its market share and incurring losses. This corporate culture also fostered strong commitment of Nissan towards its employees, which meant that any measures like restructuring or downsizing that affected the employees would run against the normal grain of the corporate culture of Nissan. The relationship between Nissan and its suppliers were more based on relationship and loyalty and less on competitive business sense. This contributed to the lack of profit in the business activities of Nissan and made Nissan less competitive in the markets it operated in. Nissan was a international company, but demonstrated very little business practices associated with an international company. The business units spread in different countries operated autonomously with minimal understanding of the local environments, little centralized control and minimal communication between the units located apart. As a result there was unnecessary duplication of effort and hardly any transfer of useful information between the units. (p. 1-6). 3. Causes of the Problem The corporate culture of Nissan resulted from Japanese traditional practices in Japanese industry. The end of the Second World War saw the demise of the large Japanese conglomerates or zaibatsus and the advent of the keiretsus, of which Nissan was one. A clear set of values were ingrained in the business practices of the keiretsus, which consisted of strong responsibility to the employees, strong business relationships with the suppliers, tight social-networking between the keiretsus, and high cross-holdings of equity between supplier and manufacturers. Such a corporate culture spawned business practices that did not support profit making. The focus of Nissan was not on customer behavior and customer demand. Instead it focused more on what the competition was doing and tailored its competitive strategy in accordance with that The minimal control and information flow between the business units in different locations was causing poor cross functional and cross border collaboration. Nissan worked at a leisurely pace, demonstrating no sense of urgency in the execution of its projects. Nissan had neither a shared vision nor a long term plan (p.7). 4. Recommended Solution to the Problem Nissan though beset with problems had its strengths and a synergy of these strengths with those of Renault would be the best solution in the restructuring of activities of Nissan to bring a turn around in its fortunes. Use of cross functional teams (CFT) can identify the synergies available in the two organizations and exploit these synergies. Car manufacturing was the core competency and activity. Divesting the equity held in many companies on the basis of the concept of cross-share holding would add focus to the core business activity and bring in much needed financial resources for Nissan. Restructuring through closure of some of the excess assembly plants of Nissan would increase the plant capacity utilization in the other assembly plants. Reduction in the workforce would remove redundant workers, increase the competency standards of the remaining workforce, and reduce the annual wage bill. Introduction of new models that cater to the customer demand in the Japanese home market and other models that cater to the overseas markets would increase the market share. Reducing and sharing of platforms between Renault and Nissan would optimize production, reduce costs, and speed up the availability of new models for commercialization. Facilitating communication between the managers and employees of French origin and those of Japanese origin was essential to prevent costly misunderstandings (P. 9-11). (1). 5. Justification The cross functional team in essence is a problem solving team as per the four fold classification of teams of Richard Ratliff. (2). The structure and the boundaries of the problem of merging the synergies of Nissan and Renault lacked clarity. A cross functional team incorporates a variety of knowledge and skills. (2). These are essential to understanding the problem and providing a solution to the problem of merging the synergies of Nissan and Renault in the alliance of the two companies. Sticking to core competencies is essential for the survival of any business organization in an extremely competitive environment. The history of business enterprises is littered with the failure of organizations companies spread their activities too far from what they know to do best. (3). Restructuring just for the purpose of cost savings is not a sound management strategy, but restructuring on the basis of a sound purpose that provides new opportunities for the organization is a sound management practice. (4). Nissan strategy erstwhile had been driven by competition. This had brought with it three unintended effects of being imitative and not innovative, acting reactively and lack of clarity in understanding emerging markets and changing customer demands. These effects could have serious consequences for sustained growth of a business enterprise. By investing in innovative products driven by customer demand Nissan would be move from a management strategy driven by competition to a management strategy driven by customer demand. (5). Establishing right communication practices in an organization is essential to enhance the ability of the organization to become aware of threats and opportunities faster and more accurately. (6). Works Cited 1. Fournier, Guy & Evans, David. Carlos Ghosn: A Study of Diversity Management in the Framework of Strategic Alliances. Reims Management School, 2007. pp.2-21. 2. Clutterback, David. Coaching the Team at Work. London: Nicholas Brealey International, 2007. 3. Beinhocker D. Eric. “Robust Adaptive Strategies”. MIT Sloan Management Review - Strategic Thinking for the Next Economy Eds. Michael A. Cusumano and Constantinos C. Markides. San Francisco, California: Jossey-Bass, 2001.pp. 131-156. 4. Prahalad, C. K. & Oosterveld P. Jan. “Transforming Internal Governance: The Challenge for Multinationals”. MIT Sloan Management Review - Strategic Thinking for the Next Economy Eds. Michael A. Cusumano and Constantinos C. Markides. San Francisco, California: Jossey-Bass, 2001.pp. 249-268. 5. Kim, W. Chan & Mauborgne, Renee. “Strategy, Value Innovation and the Knowledge Economy. MIT Sloan Management Review - Strategic Thinking for the Next Economy Eds. Michael A. Cusumano and Constantinos C. Markides. San Francisco, California: Jossey-Bass, 2001.pp. 197-228. 6. Eisenhardt, M. Kathleen. “Strategy as Strategic Decision Making”. MIT Sloan Management Review - Strategic Thinking for the Next Economy Eds. Michael A. Cusumano and Constantinos C. Markides. San Francisco, California: Jossey-Bass, 2001.pp. 85-104. . Read More