Saving The Business Without Losing

The Company
By Carlos Ghosn

Nissan Revival Plan

Submitted By : Saba Iqbal

Master in Entrepreneurship and Innovation

LBA, Luxembourg.

Email address : sabs1388@hotmail.com

What were the different problems being faced by Nissan ? And What circumstances led to
the development of problems ?

PROBLEMS:

Financial crisis:

Back in 1999, Nissan was in a death spiral. The company was carrying

• Massive debts (do or die situation, even after Renault investment, amounted to more than
$11 billion)
• Heavy losses and Margins notoriously low Plant Capacity .
• Lack of brand power (specialists estimated that Nissan gave away $ 1000 for every car it
sold in US due to lack of brand power).
• Purchasing cost very high
• Plant capacity (far in excess of company’s needs)

Renault was a middling European auto maker with a far-from-inspiring future. So when Renault
CEO Louis Schweitzer ponied up $5 billion to buy effective control of Nissan that year, there
was skepticism, to say the least. Industry wags such as Robert Lutz, currently vice-chairman of
General Motors Corp. , publicly stated that Renault might as well have dumped the billions in the
Pacific Ocean. Into the breach came Carlos Ghosn, a savage cost-cutter and first-class intellect.
But even he gave this salvage job only a 50-50 chance.

Circumstances Leading to Development of Problems:

Cultural issues (Regional and Corporate)

Regional Cultural Issues:

Keiretsu:

Nissan belonged to a massive keiretsu -- a web of business alliances -- in which stability trumped
sound financial management. It had billions of yen tied up in cross-shareholdings with suppliers
and keiretsu partners.
Perhaps Ghosn's biggest test was overcoming the deep denial inside Nissan about the company's
perilous condition. In Japan, such large companies were viewed as simply too big to fail. If the
keiretsu-linked banks didn't rush to the rescue, most execs figured, then the government would.
In reality, though, a decade of economic stagnation had frayed such insider ties severely.

Seniority Rule:

Like other Japanese companies, Nissan paid and promoted it’s employees based on tenure and
age , regardless of their actual performance.

Traditional Japanese Compensational System:

In traditional Japanese compensational system, managers receive no share options , hardly any
incentives are built to managers pay packets , which mean that the people whose decisions have
the greatest impact on the company have little incentives to get them right .

Corporate Cultural Issues:

Culture of blames:

Culturally Nissan had rigid functional silos with a bureaucratic blame culture..If the company did
poorly, it was always someone else’s fault. Sales blamed product planning ,product planning
blamed Engineers and engineers blamed finance.

The were lacking operational responsibilities.

Regional Wall: Europe and Asia were not cooperating. Traditionally, the company’s European
and North American units operated independently, sharing little information and expertise with
rest of the company.

Inadequate Product Portfolio

A key segment is not covered (mini car)

Too long cycle to introduce new products (avg. age 9 yrs vs. 5 yrs for competitors)
Lack of brand power in US

Poor Strategy:

The company lacked

• profit orientation,
• customer focus and
• Sense of urgency around a shared vision of strategy.

Lack of Innovation in Technology: Some of the engineering specifications needed to be

changed for a rightful decrease in the cost.
Since the Japanese management culture is different, a person who is not familiar with it
might do the company more harm than good. Do you agree with this view? If yes, give
appropriate arguments in its favour. If not, why not ?

“A person who is not familiar with Japanese management culture might do the company more
harm than good”, I totally agree with this statement .

In my opinion, in order for a person to effectively integrate in the company and bring benefit and
value addition to the company, a threshold level of cross cultural experience or a minimum level
of “empathy” is required. If this very person lacks both of the above, then a greater risk of
productivity loss due to conflicts arising from misaligned and miss interpreted objectives may
result in more harm to the company then benefit. The negativity and loss brought in such a
situation may be proportional to the position of the person in the company hierarchy.

Diversity in corporate environment may bring value addition to the organization but it requires
an Identification with and understanding of another's situation, feelings, and motives.

Empathy and trust are a platform for effective understanding, communication and relationships.
Both of these are essential to develop solutions, win and retain business, and avoiding or
diffusing conflict.

“I think one of the basics of transcultural leadership is empathy,” says Carlos Ghosn, the man
who is credited with turning around major Japanese car maker Nissan.

In his own words he says about the Nissan Revival Plan (NRP) “Although we were making
many profound changes in the way Nissan carried out its business, we were always careful to
protect Nissan’s identity and it’s dignity as a company”.

Carlos Ghosn knew very well that success is not simply a matter of fundamental changes to a
company’s organization and operations. You also have to protect the company’s identity and self
esteem of its people. He was very sensitive towards this delicate situation and he handled the
situation successfully.
These days we need to be more effective communicators to be successful in business - and in
life. The 'steps of the sale', persuasion, closing techniques, features and benefits do not build
rapport or relationships - empathy, trust, understanding and sympathetic communications do.
One-sided persuasion is not sustainable and is often insulting, especially when handling
complaints. Trust and empathy are far more important in achieving and sustaining successful
personal , business and cross cultural relationships.

I agree with Carlos Ghosn saying “I would say even though the term today is not very popular,
love the country and love the culture in which you are in. And try to learn about its strengths,
don’t focus on the weaknesses, and make sure that all the people you are transferring with you
are of the same opinion.”

He stresses the importance of cultivating a certain mindset or character that truly enjoys the
challenge of living in new environments:

“If you have to work and particularly do something significant in a country it is much easier if
somehow you connected with the country and you like the country and you respect the people
and you are curious about the culture.”

He maintains “it makes a big difference because people in the country working around you may
notice whether or not you are connected to the country and are happy to be there, that you are
curious and are listening. “Well, they’re going to forgive you a lot of things,”

In spite of being a foreigner and stranger to the Japanese culture he was fit for this job because
he carried the quality of “empathy” with him and he knew that you need to give a certain level of
respect to any specific culture to make people believe that you understand and respect their
values as much as they do.
What were the cultural challenges that Carlos Goshn confronted ? What were the
organisational changes ? How successful were those changes ?

Cultural challenges

• Dismantling Keiretsu
• Ditch the seniority rule

Build a new Corporate culture based on :

• Stop blaming culture

• Building Trust Through Transparency
• A reward and incentive system around performance, irrespective of age (not seniority),
gender or nationality..
• Adding sense of commitment and realizing responsibility
• Introduce changes while preserving identity and self esteem of employees.
• Media campaign

Organisational changes

• CFT network (teams and sub-teams):

He set up cross-functional Renault and Nissan management teams in engineering, design, and
sales. These were told to uncover every problem and set new, realistic-but-tough performance
goals. And Ghosn made it clear he would tolerate no backsliding: "If you disagree with the plan,"
he writes, "you've got to leave the company."

• Move advisers into operational position

• Committee to overlook regions (remove walls between regions)
• From cross function to cross company (CCTs)
• Innovation in Technology
Nissan Revival Plan (NRP) Success:

By October 1999 Ghosn announced his strategy to turn the company around with the Nissan
Revival Plan (NRP). The NRP become a highly successful cultural intersection that created the
most dramatic turnaround in automotive history. It was designed to address the company's severe
short-term problems and stop the years of declining performances. In the plan, through the
Cross-Functional teams organized, Ghosn consistently challenged the tradition-bound thinking
and practices of Japanese business that inhibited Nissan's effectiveness. Ghosn closed plants, laid
off workers, broke up long-standing supply networks, and sold off marginal assets to focus on
the company's core business. Nissan was now breaking the cultural norms of keiretsu
investments.

Cutting down costs was just the first step in Nissan's recovery. Actually changes were introduced
in every corner of the company, from manufacturing and engineering to marketing and sales:
update of Nissan's car and truck lineup; introducing new, dynamic designs; quality improvement.
These strategies quickly polished Nissan's image in the marketplace, and re-established the
company in the minds of consumers as a leader in innovation and engineering. Eighteen months
later, Nissan was back in the black, and within several more years it had become the most
profitable large automobile company in the world. Ghosn transformed Nissan once again into a
powerful global automotive manufacturer.

NRP returned the company to profitability, achieving 7.9% operating margin and cut the net
automotive debt to the lowest level in the past 24 years.Next plan, Nissan 180 propelled the
Company into a new dimension of profitable growth. In the second year of the Nissan 180 plan
the Company was the most profitable among all the global automakers with an 11.1% operating
profit margin and more than 21% ROIC .A future customer-focused plan, Quality 3-3-3 is to be
implemented as of 2005, with emphasis on three categories of quality: product attractiveness,
product initial quality and reliability, and sales & service quality.The key success factors of the
Nissan turnaround were: 1. Vision. The meaningful progress achieved was due to the vision that
Ghosn successfully shared at all levels of the company that was clear and adopted.2. Strategy.
Management's responsibility was to define the business strategy, and make sure it is deployed at
every level of the company; everybody knew what was the contribution that was expected from
him or from her for the company.

The people committed to the turnaround from the top: personal commitment, team commitment
coming from the top down. For sure the changes were not easy to implement, but the clear vision
brought that people were motivated to bring to life, and the results that showed off rapidly, gave
Ghosn credibility, making people feel safe about the company. The vision, strategy, commitment
and results guaranteed the success of Nissan's turnaround.

References:

http://costkiller.net/actu/Actu-nissan.revival.0504.htm

http://knowledge.insead.edu/ILSTransculturalLeaderGhosn080501.cfm?vid=45

http://www.kwintessential.co.uk/cultural-services/articles/business-cross-cultural-
communication.html