SBS TBS903 Intake A- 2011

Managing People in Organisation

“Nissan Corp. Ltd. Successful Organisational

Management Change”

Submitted by: Abdel Razzaq A.AbuShahout

Student number: 3954808

March 8th, 2011

Word Count: 3154

Sydney Business School

University of Wollongong

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Table of Content

1 Abstract.................................................................................................page 3

2 Introduction..........................................................................................page 3

3 Nissan during Globalisation................................................................page 4

4 Nissan transformation year.................................................................page 5

5 Challenges within Nissan.....................................................................page 6

6 Nissan Revival Plan (NRP)..................................................................page 8

6.1- Plants capacity Reduction.........................................................page 9

6.2- Personnel Reduction................................................................page 9

6.3- Reducing Procurements Costs....................................................page 10

6.4- Disposing of Non-core Assets.....................................................page 10

6.5- Establishing Cross-Functional Teams (CFT’s)..............................page 11

7 Conclusion............................................................................................page 11

8 Appendix..............................................................................................page 12

Figure 8.1 (Manufacturing capacity 1999/2002).........................................page 12

Figure 8.2 (NRP Workforce Reduction).......................................................page 12

Figure 8.3 (NRP Purchasing Cost reduction)..............................................page 13

9 References list......................................................................................page 14

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 1 Abstract

This report clarifying the way that Nissan Japanese management adapted during the

transformational year. While implementing Nissan revivals plan (NRP) in 1999, by Carlos

Ghosn after the alliance with Renault to save the company from brink of declaring

bankruptcy. Said Ghosn debts reached to be estimated of 22 billion dollars (Emerson 2000,

p.4), which has shaken the investors and shareholders confidence about the organisation well-

being. In addition, the highly rivalry market surrounding Nissan threatened by the first car

manufacturer worldwide (GM) Toyota, Honda, Mitsubishi and Ford Motor company.

2 Introduction

This report has been conducted to shed the light on an organisation that has

redesigned its overall organisational structure, during either a tough times or to seize new

opportunities exposed in the market. This organisation has been chosen to be Nissan the

second largest car manufacturer in Japan, founded in 1933 by Yoshisuke Aikawa. Nissan for

years was able to expand the company stake in the car manufacturing market and has a

massive base of loyal customers. Company revenues managed well as they handled by the

Japanese Investment system keiretsu. According to Murakami the vice chancellor of ‘The

Ritsumeikan Trust’ the Japanese manufacturing industry was ranked No.1 in their

competitiveness until the globalization era in 1990’s and now No. 27 in 2010 (Murakami

2011). However, the global economic burst in the 90’s supposed to be considered as an

opportunity to the organisations around the globe to expand. Whereas, specifically in Japan

many businesses had been affected by the globalisation, the term refers to appreciation of

communication and interdependency between countries (Scholte 2007). Even though, the

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Japanese economy had the fundamentals of powerful economy such as cheap labour force,

location, land and some other basics of production to follow the beat.

3 Nissan during Globalisation

In the 1990’s whereas the world economies in expansion level the Japanese firms

had done nothing until the 1993. Along with who they called the ‘Nissanits’ they believed

that Nissan never going to collapse referring to the enormous size of ‘keiretsu’ investment

system (Nayebpour & Saito 2007). However, the whole automotive sector couldn’t be able to

meet the world needs of their products. According to the statics by Statistical Bureau and

METI cited by (Motohashi 2006) they had -7% exports during the 1990’s. Consequently,

Nissan for seven continues years begun in the 1993 witnessed a severely decline in its sales

worldwide, thus its global market share had shrunk “by 25% since the peak year of Nissan in

1985. As well to the domestic market had declined from 18.6% in 1989 to 13.3% in 1999”

(Nayebpour & Saito 2007). Nonetheless, it took the third place in transportation manufacturer

in Japan at the late 1990’s. Whereas, during those seven years the headquarter management in

Japan attempted several times to transform the company, but unfortunately it seems they been

stuck in their business traditional practices called ‘keiretsu’ investment system. As a result for

that, Nissan grown to fail to be in debts around $22bln, adding on that extra $20bln frozen in

its ‘keiretsu’ partners corporate (Hays 2010). Some other reasons that led to that decline are

the irresponsibility of the management of leading the company, and the unimaginative model

design that couldn’t attract the buyer to their cars. No forgetting the number of suppliers they

were even not cost efficiently to the company led to high manufacturing costs.

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 4 Nissan Transformation year

In the 1998 when Nissan were on brink of declaring bankruptcy as “the earlier

effort, which called for a (-$9.3bln) reduction of debt in last three years by selling assets,

cutting costs and trimming employees, didn't go far enough or fast enough”(Bloomberg News

1999). Therefore, the pressure increased by shareholders to find a strategic partner after 66

years of interdependence. Hence, Nissan management offered some companies their

partnership, such as Chrysler and Daimler, but the refusal was the obvious answer according

to the company performance in that time, seeing that by insider executive in Daimler said

“You might as well put $5bln on a ship, paint 'Nissan' on the side and sink it” (Parker 2009),

in addition to the stubborn company culture. Meanwhile, Renault the French car

manufacturer was looking to expand its global market share. For instance, both companies

can complement each other while Nissan has its market in North America and Japan to fill

Renault gap in those regions. Where Renault could bailout some of Nissan debts and

proposes its products in its own markets, which based in Europe and South Africa.

Furthermore, the merger between Daimler and Chrysler convinced Renault to the alliance

with Nissan. Hence, Renault and Nissan can expand their pool of expertise and full

cooperation on all the managerial practices. As well as exchanging the best practices to

improve productivity (Renault 2011). Renault CEO Louis Schweitzer and Carlos Ghosn as

one of the board director members decided to take the risk and invest in Nissan.

In March 1999 the alliance was confirmed with signing the agreement by Yoshikazu

Hanawa CEO of Nissan and Louis Schweitzer Renault CEO. That acquired Renault 37%

stake in Nissan. On the other hand, Nissan gets $5.4bln (Kase et al. 2005, p.8). In that time,

Renault second man Carlos Ghosn a Brazilian born Lebanese origin, with his long experience

in his career as COO in Michelin Brazil and South America for 18 success years, and 4 years

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in Renault, in addition, to the cross-cultural background qualified him to be appointed as

COO of Nissan-Renault headquarter in Asia. Ghosn known in Renault as ‘le cost killer’ as a

result of the cost reduction program kicked off in 1996, to cut $3.6bln in annual operating

costs and notorious plants closing (Business week 2004).

Nevertheless, Ghosn in his first speech after arrival on Nissan headquarter said “Nissan

suffered from a lack of clear profit-orientation, insufficient focus on customers and too much

focus on chasing competitors, no culture of working together across functions, borders, or

hierarchical lines, lack of urgency, and no shared vision” (Ghosn 2002).

5 Challenges within Nissan

However, Ghosn addressed three main challenges would be facing in the alliance

with Nissan, financial, cultural and structural.

First of all, the financial difficulty of Nissan, Ghosn excluded the external business

circumstances, such as economic recession and fluctuation market as main reasons of Nissan

setback. Whereas, the other Japanese manufacturer Toyota and Honda were been doing fine

in the same region. Believing the Japanese business norms as what stipulated in Keiretsu

system, the need to invest a big amount of money in many other Keiretsu members company

and freeze the money for long time to be loyal (Ghosn 2002), this is more likely one of the

factors that affected the businesses well-being. For that reason, the Japanese manager’s panic

to break the relationships with their associates in keiretsu, Ghosn “believed that loyalty and

cooperation were fostered among members within their keiretsu system since the 1950”

(Millikin & Fu 2003). This attributed to “more than $4bln invested in poor performing

keiretsu partners companies, and a highly bureaucratic decision making process within

Nissan” (Nayebpour & Saito 2007). For instance, Ghosn wondered of the good reason to

invest $216 million in Fuji heavy industries, the same manufacturer for Subaru cars and

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mainly considered as a competitor for Nissan (Ghosn 2002). While those amount of money

could have crucial impact on Nissan balance sheet.

Secondly, Ghosn addresses the cultural issues that affected Nissan for 28 year in raw

resulting in wide losses, Nissan managers were aware of consensus decision making process,

therefore, they tend to react and get the most favourable solution for problem from others

avoiding to make the wrong decision, and get all the blame for the consequences and

affecting their career growth. According to Ghosn said the Japanese companies treating their

employees based on how long they been working for the company (Ghosn 2002). Indeed, in

some sense the longer they work the better they will be treated and get paid, ignoring their

overall productivity that determine the company performance among competitors. Hence, if

there was no relation connecting performance and promotion policy it will definitely

discourage individual initiatives (Rigsbee 2009). Accordingly, they were needed to hold

informal meetings with the staff prior each decision for discussion, spending more time on

details and concepts without having much sense for the urgency to make decisions. In view of

that, this pattern often results in delays to the decision making process in an attempt to attain

the organisation goals (Millikin & Fu 2003). For that reason, logically thinking by Ghosn

resulted by instituted a new promotional and reward system based on individual’s

performance, included annual bonuses and stock equity, irrespective to the gender and age or

nationality of workers, as well ditching the seniority by promoting the qualified person

(Ghosn 2002). “They are often bypassing the traditional career structure to move much more

directly and quickly into positions of power within Japanese corporation” (Cooney 2004,

p.24).That would create a kind of resistance and ignorance in the internal environment, as

young people would be promoted to give orders to old people who like to work on their

mature ways of conducting work.

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 In structural aspect Nissan was deficient of employees hierarchy, thus, it was hardly to

identify the strategic roles for many of the senior’s managers within the company, as they

were got titled as ‘advisors’ or ‘coordinators’ for different departments, so they were hiding

behind those titles to diffuse the accountability of problems on lower management levels in

the same department (Cooney 2004). For that reason, Ghosn observe this lack of

accountability in the company, so he responded by eliminating all the advisory positions, and

put them into positions that they were be directly responsible for conducting operational

work. Thus, implementing such a change in bureaucratic decision making company, urged

the mangers to take accountability to correct their wrong decisions.

6 Nissan Revival Plan (NRP)

The new alliance between Renault and Nissan called for strategically transformation

intensive cost reduction plan, which it could save the company from its losses toward

different successful era. However, it will be costly around $1.9bln to cover the cost of

implementing this plan into Nissan (Storm 1999). Ghosn took three months diagnosing the

wrong practises by previous management, by holding formal and informal meetings with

different department’s managers, as well as talking face to face to the employees during his

tours in the plants, asking them about the problems they usually faced possible solutions. ‘Le

cost killer’ was surprised that Nissan manufacturing managers could tell him how many

minutes needed to build a car, but they don’t know how much it does cost (Hughes et al.

2007). The revival plan announced in 1999 and took off in April, 2000. NRP aimed to shift

Nissan multiregional corporate to a worldwide corporate (Nakae 2005).Therefore, Nissan’s

executive’s board stated three brave commitments, “if any of these were not met, the

member’s promised to resign: first to achieve return to net profitability in fiscal year 2000,

secondly, having a minimum operating income to sales margin of 4.5% by fiscal year 2002.

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Thirdly, to secure net automotive debt reduced to less than $7bln by fiscal year 2002” (Nissan

Annual Report 2001). Believing in what Ghosn said about transparency within organisation

its only will “be effective if the followers believed what the leader think, say, and do”

(Millikin & Fu 2003). However, according to Ghosn the setting plan is only 5% of the

challenge, the remaining 95% lies under execution (Hughes et al. 2007). Therefore, NRP

consists of five parts:

6.1 Plants capacity Reduction

Nissan had eight plants located in Japan were they been operating at 53% of their

utilization capacity, which it’s minimum of 2.4 million car (Hughes et al. 2007). Therefore,

NRP opted to close three plants in order to focus more on the remaining five plants, and

increase their productivity, to be able to achieve 82% utilization capacity by operating two

fully loaded shifts, In addition, reducing the number of car assembly platforms from 24 to 15

though reducing the complexity of manufacturing process by 2002 (Nakae 2005). (See figure

8.1)

6.2 Personnel Reduction

Moreover, Ghosn had to make a critical decision based on his previous cost

reduction plans experience. By reducing the workforce by 14% around 21,000 jobs of the

overall 148,000 worldwide workforce (Gozaimasu & Ami 1999), by attrition, increased use

of part-time workers, spin-off and early retirements, as follows 4,000 in manufacturing, 6,500

from the Japanese dealers networks, 6,000 in selling and other managerial departments and

5,000 spin-off. Whereas, will have increasing in R&D workforce by 500 (Storm 1999).

According to Ghosn insisted to develop R&D to move into integrated organisation globally,

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thus, investment in R&D will increase from 3.7% to 5% by 2002. Furthermore, an ethical

behaviour by Ghosn guarantees to employees there would not be direct layoffs, as transfers to

other companies will be offered and recruitment process will be monitored by HR department

(Hughes et al. 2007). (See figure 8.2)

6.3 Reducing Procurements Costs

Ghosn emphasized in the plan on cutting cost from all aspects by 2002 “this is

expected to yield a 20% saving on procurement costs, worth $1.7 billion a year” (Hughes et

al. 2007). Thus, this part of NRP sought to centralize the purchasing processes, carried out

two main outcomes to “reduce the number of material suppliers from 1,145 to no more than

600, and the equipment suppliers from 6,900 to no more than 3,400 in 2002” (Nakae 2005).

This meant for many suppliers losing the contracts with Nissan, but to the others meant large

volumes to be supplied with lower prices. (See figure 8.3)

6.4 Disposing of non-core assets

In the time of announcing NRP in 1999, after the Asian economic crisis whereas

many businesses been affected and had lower share prices, Ghosn found that Nissan had

invested in more than 1,394 companies as mentioned before according to keiretsu system.

Therefore, they decided to sell out all these shares, lands and securities to retain as much as

they can of cash to bailout the company of cumulative debts (Ghosn 2002). In spite of that,

Ghosn was not worried about the company relationships, because he knows how to distinct

between Nissan customers and Nissan shareholders.

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6.5 Establishing Cross-Functional Teams (CFT’s)

As Nissan and Renault merged but they still operates in different locations. Ghosn

had stated “I am not going with any preconceived ideas” (Culpan 2002) Ghosn had made

critical decision to create nine cross-functional teams and some sub-teams, that each consists

of ten members responsible for different departments such as business development,

purchasing, manufacturing, logistics and R&D. Hence, making the employees engage in

revival process would consider as motivator to increase their productivity. Whereas, “They

had no decision making power, they only reporting to the executive committee in Nissan and

they have the access to all the company information” (Ghosn 2002).

7 Conclusion

Nissan had adapted the change perfectly with Ghosn leadership savvy and

experience, and got back on the track of competition. In addition, the big move by Ghosn to

break the Japanese business traditions ‘keiretsu’, which made it possible to Nissan people to

conduct work effectively and bailout from all of its debts, achieving all the NRP

commitments by executive committee. Nonetheless, Focusing on the technological strength

of Nissan and increasing R&D capabilities by creating globally centralized R&D centre. As

well as creating optimum positive work environment to the employees by creating CFT’s to

be involved in the organisational growth. To become an ideal way to other Japanese

companies to imitate with in conducting their businesses called ‘Nissan Syndrome’, “which is

defined as the willingness in the Japanese corporate world to permit foreigner, to do the dirty

work of restructuring through layoffs and cutbacks that a Japanese CEO would not or could

not do, due to the restraints of cultural norms” (Cooney 2004, p.22).

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8 Appendix

(Figure 8.1) Source (www.Nissan-global.com)

(Figure 8.2) Source (www.Nissan-global.com)

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 (Figure 8.3) Source (www.Nissan-global.com)

9 Reference list
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