The case study "Turnaround at Nissan"
The case study "Turnaround at Nissan" in Afsaneh Nahavandi's book "The Art and Science of Leading" discusses the significant leadership initiatives taken by Carlos Ghosn that resulted in a turnaround at Nissan. Many factors contributed to Nissan's merger with Renault, the main cause being that Nissan was in serious decline and had lost a large amount of money over the majority of its years of operation. As a result, Renault declared its willingness to accept a portion of Nissan's obligations in order to keep the Japanese company from going bankrupt. Additionally, Nissan had poor financial performance that resulted from excessive costs, declining sales, and weak management, all of which facilitated the need to merge with Renault. Besides, the management at Nissan lacked a strong profit orientation, coherent strategy, as well as a clear focus on customers. In fact, there was little cooperation across all the company's functions, and therefore there was a need for significant changes, hence its merger with Renault.
One of the driving forces for change at Nissan in 1999
One of the driving forces for change at Nissan in 1999 was the excessive costs at the company. The high costs were as a result of the company’s action to use only half of its available capacity while the company’s production capacity could allow for the manufacture of a million cars evert year. Another driving force for change at Nissan was the company’s inefficient production operations which were many but less productive. On the other hand, one of the resisting forces for change at Nissan in 1999 was the possibility of undermining the relations with the employees if the company decided to close some plants in the process of causing change. Another resisting force for change was going against the company's cultures and practices which could, in one way or another, face some resistance by the employees.
Ghosn faced a broad range of cultural challenges in his efforts to cause change at Nissan
Ghosn faced a broad range of cultural challenges in his efforts to cause change at Nissan. One of the challenges was that Nissan was paying significantly high in purchasing costs (25 percent higher) than necessary for the various supplies and parts used to assemble its cars. Another challenge was Nissan's practice of purchasing small orders from several suppliers as opposed to purchasing large orders from few global sources. Ghosn, therefore, had a challenging task of reducing the number of suppliers. The Nissan Engineers’ practice of overly exacting specifications was another cultural challenge faced by Ghosn. The Engineers, however, realized their mistake after Ghosn’s intervention and the company managed to achieve greater savings than they expected.
Ghosn took a broad range of steps to bring Nissan to profitability
Ghosn took a broad range of steps to bring Nissan to profitability. After Ghosn had conducted an analysis of the company’s sales data, he realized that only four of the forty-three different Nissan models had sales that were sufficient to be profitable. Therefore, to increase the appeal of the customers for the Nissan cars, Ghosn hired Shiro Nakamura, an innovative designer, and gave him the authority over design decisions. As a result, Nissan began building cars vehicles that excited customers across the globe for the first time over a decade. Ghosn ended up introducing 12 new Nissan models over a period of three years. Ghosn also brought Nissan to profitability by strengthening the company’s distribution network. Since strong brand loyalty in Japan gets reinforced by the efforts to maintain strong relationships with the customers through proper dealerships management, Ghosn lowered the number of company-owned dealerships worked towards improving the management of the remaining dealerships. As a result, he created customer loyalty, which translated to repeated sales.
Various organizational and motivational behaviors were fundamental to Nissan’s poor performance
Various organizational and motivational behaviors were fundamental to Nissan’s poor performance. Practices such as promotion based on seniority and guaranteed lifetime employment and pay significantly contributed to the company’s poor performance. In fact, transforming such practices that got embedded strongly in the company culture was one of the greatest challenges for Ghosn. The attempt my Ghosn to change such aspects of company culture had a high likelihood of affecting the Nissan’s non-unionized employees, including the company’s managers. However, Ghosn approached the problem by establishing a merit pay plan that would see employees getting rewarded and promoted based on performance.
Ghosn’s Leadership Styles
Leadership Actions Taken by Ghosn
As described in the case study (Turnaround at Nissan), Ghosn exhibited a broad range of styles in his leadership by taking various leadership actions. The Nissan's poor financial management was as a result of both excessive costs and declining sales. Additionally, the failure to resolve such problems was as a result of the company's weak management. To reduce the company's excessive costs, Ghosn took the action of closing five Nissan factories in Japan and eliminated over 21,000 jobs, which represented fourteen percent of the Company's global workforce. He also planned to lower the number of Nissan car platforms by half, as well as that of powertrain combinations by a third in his efforts to simplify the company's production operations in its remaining factories and make them more efficient.
Ghosn also made a comparison of the expenses at Renault and Nissan, and he realized that the purchasing costs of Nissan were higher by 25 percent. In his efforts to reduce the Nissan’s purchasing costs, Ghosn changed the company’s practice of purchasing small orders from several suppliers and adopted the purchase of large orders from few global sources. Additionally, he reduced the number of suppliers. As a result, Ghosn managed to achieve his goal of reducing the company’s purchasing costs by 20 percent after three years of his persistent efforts.
After making a detailed analysis of the company’s sales data, Ghosn discovered that only four of the forty-three Nissan models could make sufficient sales and earn the company profits. He, therefore, hired Shiro Nakamura, the innovative designer, in his attempt to increase the appeal towards Nissan cars. As a result, Nissan started designing cars that impressed customers both in Japan and other parts of the world. Additionally, Ghosn ended up introducing twelve new Nissan models over a period of three years.
Leadership Theories Embraced by Ghosn
One of the leadership theories embraced by Ghosn at Nissan was the Transactional Leadership Theory (Ghosn and Iniesta 45). The theory’s primary characteristic is a transaction between the leader and his followers. Additionally, the transactional leadership theory values a mutually beneficial and positive relationship between the leader and the followers (Ghosn and Iniesta 46). At Nissan, Ghosn exhibited the transactional leadership theory by engaging and getting the views of the company's stakeholders including the employees, suppliers, union officials, and customers before he assumed his new position at Nissan. The main aim of such an engagement was to learn more about the company as well as determine the best approach to the company's issues without adversely affecting any section of the company's stakeholders. Such a leadership approach also made him understand some of the company's strengths and weaknesses. From such meetings, coupled with prior experiences with other turnaround assignments, Ghosn managed to understand the importance of involving all the company stakeholders in bringing major changes to the company (Ghosn and Iniesta).
Another leadership theory embraced by Ghosn was Transformational Leadership Theory. The theory describes the process by which leaders interact with their employees and other company stakeholders with the aim of creating a solid relationship so as enhance trust and motivation (Millikin and Fu 121). At Nissan Ghosn exhibited the transformational leadership theory by creating nine cross-functional teams after assuming his job at Nissan in the month pf June 1999. He gave the teams an assignment of determining what needed to get corrected so as to revive the company (Millikin and Fu 124). The company had never used such teams before, and it was a rare practice to make use of a broad cross-section of managers in Japan to determine major critical changes. However, the teams perfumed their tasks according to Ghosn's expectations, and they identified several interrelated problems which were consistent with, to a great extent, with Ghosn's impressions (Ghosn and Iniesta 47).
The Source of Ghosn’s Power
Ghosn’s power comes from nondescript, small office building located in Amsterdam, where Ghosn holds the Renault-Nissan Alliance CEO and chairman titles. The office has its own board that consists of at least three senior executives from Renault and at least three senior executives from Nissan. Ghosn’s Amsterdam office is where he makes most of his straight decisions (Ghosn and Iniesta 48).
Ghosn gained his power by persistently working 15 to 16 hours per day, going around the globe and holding town hall meetings, as well as touring different factories and attending several boards and executive meetings (Millikin and Fu 126).
At Nissan, Ghosn utilized his power to revitalize the company. He made several changes at the company that saw Nissan rise to the level of making good profits and producing new impressive car models that excited several customers across the globe. Additionally, Ghosn used his powers to meet his turnaround objectives as scheduled. In fact, the company earnings were at high records by the year 2001, three years after Ghosn assumed his new Job at Nissan (Ghosn and Iniesta 49).
The Change Management Practices Used by Ghosn
One of the change management practices used by Ghosn was his step to ensure that employees got informed of the reasons for various changes and how they would be affected. For example, Ghosn made a decision to close five Nissan factories in Japan and eliminated over 21,000 jobs in his efforts to reduce costs. However, he ensured that the employees got informed of such changes as well as how such changes would affect them. Ghosn understood the importance of informing the employees of what would happen to them upon the closure of some factories as a way of making them prepared. Additionally, Ghosn tried to minimize various adverse effects on the company’s employees by using natural attrition, selling subsidiaries, and creating opportunities for part-time work.
Another change management practice used by Ghosn was transforming the strongly embedded company culture aspects without demoralizing employees and engendering resentment. In his efforts to change human resource practices at Nissan, Ghosn discovered that the changes would mainly affect the Nissan’s non-unionized employees, including the managers. He, therefore, established a merit pay plan that saw the employees getting promoted based on performance as opposed to seniority. Such changes were aimed at gradually replacing upper-level and weak middle managers with more competent new managers.
Conclusion
From the case study, I gained much knowledge regarding the organizational behavior and leadership practices required to implement change. The first knowledge gained is that there is something people can learn from every culture. Ghosn took the best of the French culture and married it with the best culture in Japan to bring the turnaround at Nissan. Another knowledge gained is that solutions come from the employees at all the levels. Ghosn spent the better part of his first few weeks at Nissan traveling to various parts of the world to meet dealers and customers with the objective of getting solutions to various problems facing the company. I also learned that personal commitment forms a significant step towards implementing change in organizations. Ghosn had a full commitment to reviving the company and pledged that he would resign if failed to meet his objectives as scheduled. Another knowledge gained is that company leaders need to change people with data and logic as opposed to threats. Ghosn believed in the people's intelligence and reasoning abilities, and he, therefore, used logics to convince them.
Works Cited
Ghosn, Carlos, and Pedro Nueno Iniesta. "Carlos Ghosn: "Every Problem Has A Solution. Are You Ready To Pay The Price?". IESE Insight 15 (2012): 45-49. Web.
Millikin, John P., and Dean Fu. "The Global Leadership Of Carlos Ghosn At Nissan." Thunderbird International Business Review 47.1 (2004): 121-137. Web.
Nahavandi, Afsaneh. The Art And Science Of Leadership. 1st ed. Boston: Pearson, 2015. Print.
