Nissan needed a strategic partner that could strengthen the company

Carlos Ghosn at Nissan

As Nissan had incurred losses for seven of the previous eight years, the company was in need of a fast turnaround. To elaborate, Nissan needed a strategic partner that could strengthen the company from both a financial and a managerial perspective. An alliance was established between Nissan and Renault, and Renault accepted to let Carlos Ghosn (Ghosn) transfer to the position of Chief Operations Officer (COO) for Nissan. For this turnaround to work effectively, major changes had to be made at Nissan. In fact, according to industry analysts, it was evident that there would be a cultural clash between Ghosn's French leadership style and his new Japanese employees.

Question1:

1A) On the whole, I would say that resistance is inevitable when such great and complex changes are to be made within such a short period of time. This is even more so when the changes are being implemented in a country like Japan, which is known for its strong cultural heritage. Nevertheless, the extent of the resistance also depends on the way one goes about making the forthcoming changes. Initiatives such as encouraging the involvement of employees and clear communication regarding the necessity for change can be a good tool to minimize possible resistance. When we look at the gravity and the time frame of the changes Ghosn made at Nissan, and how different they were from the traditional Japanese way of business, it is surprising to see that the resistance was relatively small. Examples of resistance in this case can be found on two different levels: the organizational level and the community level. At the organizational level, there was resistance as a response to the way candidates for promotion were evaluated and chosen. At the community level, the case cites examples of resistance from the media and the industry analysts.

For instance, the media was critical of Ghosn's decision to shut down four factories and in the process, lay off 21,000 workers. Such a drastic measure was seen as a direct violation of the "lifelong employment" culture that prevailed in Japan. Therefore, as a consequence of these layoffs, Ghosn was labeled as a gaijin, or a foreigner. More criticism followed from industry analysts 3 after he fired the Vice President of Sales and Marketing in Japan along with several other managers that did not meet their targets. 1B) The reasons for the resistance at the organizational level can presumably be traced back to a fear of poor outcome from the changes. The resistance came primarily from longer serving employees who expressed their disagreement by lacking the will to cooperate. Before Ghosn became COO, seniority and education were the key factors determining the course of a worker's journey up the career ladder. As per the case, the only hindrance in this time-andeducation- based process of awarding promotions was the possible existence of performance errors that reflected poorly on the team and led to disharmony among members. This culture changed immediately upon the arrival of Ghosn as he aligned goals and incentives to encourage risk-taking. He introduced new key factors for promotions where everyone had to compete at the same terms. Rewards and promotions were subsequently given to the highest achievers and those best qualified, regardless of age and education. It is understandable how these changes can be viewed as a poor outcome for senior employees since their chances for a promotion become relatively lower in comparison with the old system. The resistance from the media about the closing of plants and the firing of employees can presumably be traced to back to cultural differences. As the informal business norm and tradition in Japan tended to principally offer lifelong employment, Ghosn's choice of action was considered a violation of this culture. Hence, the source of the cultural clash in this instance was the organization's decision to shift towards an emphasis on optimizing the business and making it profitable rather than maintaining stability and employment within the market. Cultural differences can also explain the resistance from the industry analysts in the same way as described above for the workers who were negatively impacted. Furthermore, it seems that the analysts' disagreement with Ghosn on the source of the company's financial struggle is another cause for the resistance. To elaborate, the analysts suggested that the performance of the Vice President of Sales and Marketing was not the main reason behind Nissan's falling revenues and market share. Rather, they argued it was Nissan´s aging product that was the reason for the declining financial performance. 4

Question 2:

2A) Ghosn was recruited to be the COO at Nissan, and assigned to make many complex changes so that the company could survive its competition. Most of the information found within the case indicates that the organization as a whole felt positively about the arrival of Ghosn and the way he managed the changes. Ghosn joined Nissan with an open mind and wanted to discover Japan through the actions of Japanese people. He knew that pushing reforms forward through his corporate authority would create unnecessary resistance. Therefore, he wanted to work in close co-ordination with the Japanese culture. He became the first manager to walk around the company's offices and introduce himself to all employees, regardless of their position within the organization. Furthermore, he initiated meetings with hundreds of managers, allowing them to speak out openly about their view of the problems confronting the company. It seems Ghosn's initial approach left many members of his workforce impressed as he promoted two-way communication regarding how the revival of the company should occur. It also seems that he won the employees' trust, partly by means of engaging in a candid dialogue with them. Most importantly, he won the support of his workers by putting his career on the line when he publicly stated that Nissan already had the right employees to achieve profitability again within two years without significant external recruitment. As stated earlier, Hanawa - the president and CEO for Nissan - directly requested Renault to send Ghosn to initiate the turnaround process. No explicit reason is given in the case about why Hanawa singled out Ghosn for the job. However, it is implied that the Frenchman's multi- cultural track record with vast experience in global leadership from three different continents was a huge factor in the recruiting process. The request to acquire the services of Ghosn implies that from the very beginning, the management was convinced about Ghosn's ability as the right man for the COO position. The positive reaction towards Ghosn from top management presumably also made a positive impact on the way lower levels in the workforce hierarchy prepared for his arrival. It is mentioned in the case that the initiative to create Cross-Functional-Teams (CFTs) was largely enjoyed by mid-level managers. Prior to the creation of CFTs, mid-level managers rarely saw beyond the boundaries of their functional responsibilities. Upon the creation of the 5 CFTs, the participation of mid-level managers increased dramatically, thus allowing them to learn extensively about the business. It made them feel fully engaged in the process of implementing changes and additionally, gave them a sense of responsibility as well as ownership over the turnaround for Nissan. The higher sense of ownership and participation in the process of running Nissan were largely enjoyed by these mid-level managers. This is a testament to the fact that they felt good about Ghosn and the way he managed Nissan. In addition to being an effective management tool for driving change, the CFTs also acted as a mechanism to explain the necessity for changes in the entire organization. This mechanism of information sharing, in addition to the arguments stated above, had a very positive effect on the way lower level employees perceived the changes as they were kept informed about the necessity of the changes along the way. The perception that the lower levels of the organization also had a positive view of Ghosn's management style can also be witnessed by the way they embraced his proposals and actively engaged in the changing processes. The case states that Ghosn expected that his attitude towards the job and the cultural differences would lead to success. Still, the way most Nissan employees demonstrated a strong agreement with him and participated actively during a tough time for the company meant that Ghosn managed to achieve his objective ahead of schedule. 2B) As the answer to the previous question suggests, Ghosn was successful in enlisting the support and engagement of his employees with few exceptions. One example that verifies that he received support from the top was the acceptance of his non-Japanese way of managing the business. They seemingly supported the changes he made within the performance evaluation system and eventually, there was also an understanding about his need to lay off 14% of the workforce (including high ranked managers). Top management also either supported or accepted his choice to divest from the keiretsu investment philosophy in Nissan´s value chain. Examples of the support from mid-level managers can be pointed out based on some of the changes the CFTs came up with. As stated in the case, the CFTs prescribed some harsh solutions. They were actually the ones who suggested that some plants be closed and that 6 employees should be laid off, which was an adversity to the business culture that they were accustomed to. This serious attitude towards their responsibility in the CFTs implies that the mid-level managers fully enlisted their support to Ghosn. Also, from a general perspective, employees at lower levels offered their support to Ghosn's reforms as well. The best example of this is, as stated earlier, is the quick manner in which the employees accepted and participated in the changes implemented by the management. The fact that Ghosn has credited the entire success to the employees' willingness to keep an open mindset and adopt new ideas also suggests that he had strong support from within the company throughout the Nissan Revival Plan (NRP). Although it seems that all layers of Nissan showed Ghosn their support, there also seems to lurk a cognitive perception among employees that their employment status was immune to corporate problems. The cause of this perception can be traced back to the Japanese business tradition, which urged that troubled companies always be bailed out by the government to ensure future employment and exports. This perception had led to reduced motivation and slow decision-making without much sense of urgency. This way of thinking was clearly not supporting Ghosn's ideas for Nissan's revival. Fortunately for him, the bankruptcy of Yamaichi brought about a change in the employees' way of thinking. This gave him a way of influencing their culture through storytelling as he used the Yamaichi story to remind people of the importance of working together towards achieving a common goal.

Question 3:

3A) As the case also suggests, Japan has a very distinct business culture. Due to being stationed in Japan, Nissan inherited many aspects of this distinct national culture. From a bird point of view, it seems that the most pronounced cultural difference between Ghosn's ideals and Nissan's norms is the business philosophy regarding the primary purpose of the company's operations. Evidence from the case suggests that Ghosn´s predecessors focused mainly on regaining market share rather than increasing profits. Moreover, they were more focused on developing Nissan through keiretsu investments than through product development. Originally, the management's agenda was to do what was best to maintain the 7 company's size and employees. When we compare this philosophy with Ghosn's business model, it becomes clear that fundamental differences existed in the way the company's primary purpose was interpreted. Ghosn's views were influenced be the western philosophy, where usually the focus is not on size or growth per se, but instead on profitability. As one can see in the NRP, Ghosn aimed his focus on meeting market demands, establishing a strong brand image, and enforcing cost reduction. Targeting cost reduction resulted in closing plants and firing people - initiatives that the previous management and traditional Japanese companies would likely have condemned. Another pronounced difference was the divesting from keiretsu partnerships, which in Japan was seen as the link to loyalty and cooperation between members of the value chain. Other pronounced differences can also be witnessed when we further examine the organization. For example, there is a big difference in the way Ghosn and his predecessors view decision-making and its relationship to career development. To reiterate, the only obstacles that could typically prevent the traditional time- and education-based promotion advancement were performance errors and such. This way of thinking resulted in employees using all means to avoid taking any risk that could hurt their career. Furthermore, this mentality resulted in nemawashi, which mainly served the purpose of ensuring that no individual could be held accountable for a failed proposal. As a whole, this resulted in inefficient decision-making processes and high risk aversion. When Ghosn took over, he changed this perception of success and failure. He stimulated a culture of increased risktaking and at the same time, promoted the idea of accountability. This was done by punishing inaccurate data harder than misjudgments. Also, he took the question of career advancement out of the risk-taking equation. Divergent from the norms in Japan, Ghosn set achievements and qualifications as the key factor for career development. Also he implemented performance-based incentive systems that were based on contribution to operating profit and revenues. Based on profit and revenue, the highest achievers got the highest rewards, which was also divergent to traditional Japanese business norms. 3B) When a company with such strong cultural standards like Nissan is confronted with such extensive changes, a culture clash can easily become a hindrance. Nevertheless, this case 8 mainly demonstrates the opposite as effective management of cross-cultural conflicts resulted in more assistance than hindrance for Ghosn. A key factor that explains why culture became a helper is the way Ghosn dealt with the cultural differences. As mentioned before, he came to Nissan with an open mind and the belief that cultural differences could provide opportunities if they were dealt with in a constructive manner. He laid out the overall principles of management, but allowed the existing members of the organization - through the CFTs - to take part in constructing the revival plan. Also, the CFTs acted as an information sharing mechanism that communicated the strategy down through the organization. Ghosn's clearly outlined strategy and effective communication of his priorities within the boundaries of the Japanese culture helped him earn the respect and commitment of his workforce. In short, his leadership style went a long way in ensuring that the turnaround process occurred as rapidly and smoothly as it ended up doing.

Question 4

Due to the wide range of changes that Ghosn and the CFTs implemented, I would argue that they could have succeeded years earlier. Although the bankruptcy of Yamaichi evidently was a great stroke of luck for Ghosn in his efforts to enforce the need for change, I would not say that this was the main reason for the turnaround success. Neither do I see Nissan´s critical finances at the time as main factors. Rather, I will argue that the main reason behind the success was Ghosn's explicit strategy and his engaging way of management as he went to great lengths to involve the entire organization in the transitioning process. Previously, one major problem at Nissan was that employees in functional or regional departments were not critical enough of their internal operations, and there was very little focus on contributing to the overall success of Nissan. Moreover, there was a lack of communication between upper management and lower-level employees about Nissan´s key corporate decisions. Hence, rather than only accusing the employees' lack of motivation and urgency in challenging the belief that Nissan could never go bankrupt, I would place even blame on the aforementioned flaw with the upper management's approach. Ghosn acted very thoroughly in managing these issues that seemed to be the root of the problem. He approached the issue by identifying a clear strategy and communicating his priorities to the entire organization. He created CFTs for mid-level managers so that they could become more 9 aware of the need for a change in Nissan's overall business operations. He also structured the organization toward permenent CFTs each servicing one product line. This provided employees with an increased visibility of the details of the business processes. The changes he made in performance evaluation and career advancement procedures presumably played a role in increasing the general motivation of employees as the competition for bonuses and promotion was equal for all employees. The satisfaction of employees increased the probability for the achievement of another key objective - customer satisfaction. In my opinion, the initiatives offered by Ghosn and more importantly, the way they were integrated within Nissan's operations, provided a strong enough foundation to drive the required organizational changes without the assistance from the bankruptcy of Yamaichi. However, it must be acknowledged that the bankruptcy of Yamaichi served as a catalyst in the turnaround process.

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