Case Study: Renault – Nissan Paradoxical Alliance #Leadership #ChangeManagement

Background: 

Since the era of industrialization, the automobile industry has been a dynamic industry with strategic alliances and partnerships. In 1999, Nissan and Renault were struggling on various changes of the market; an alliance was the key to their mutual success.


Renault was recovering back from the loss and Nissan was about to go bankrupt. Both companies have their strengths in their respective areas. Nisan was an engineering powerhouse with the strong presence in Japan, North America, and Asia. On the other hand, Renault had an expertise in the style of marketing and design and had a stronghold in Europe and Latin America. Potentially, a successful alliance can make them conquer the global automobile market.

Challange:

The biggest challenge was the “clash of the cultures” as both companies were nationalistic and patriotic and both believed that its way of doing things is the right way. Nissan was the symbol of Japan’s industrial strength and French State had 44% controlling stake in Renault. Both companies initiated the alliance with the “six months social initiation program known as “tinkunacuy”– an ancient practice of the Andean civilization.

During the program, both companies picked 100 engineers and managers to work together without any formal objective. The appointment of the Carlos Ghosan as the COO, a South American of Lebanese descent with the boundary- spanning leadership traits was the major step towards the success of the alliance.

Leadership:

The prime goal of Carlos was to create a core leadership team with boundary spanning leadership traits. He addressed the people in Japan stating that he is not going to Japan with any preconceived ideas. He handpicked 17 French executives from Renault and brought them to Nissan. These executives were about 40 years of age, experts in their field. Most importantly, they were great coaches and open minded who can replicate their skills into others. He gave them a clear objective and that was “to fix Nissan”, anything that does not contribute to that goal was of no concern to them. He also placed 2 executives that he bought from France at the most important positions of Finance and Product development. Carlos also reduced the size of the Nissan’s Board of Directors from 37 to 10. Carlos gave liberty of selection to the Japanese members in the executives to the President Hanawa.

Carlos selected 200 people from the 1500 Nissan employees for his new leadership cadre consists of nine cross-functional teams. He selected open minded young mavericks with a high degree of acceptance of cultural difference. He did not emphasize much on the multicultural experience, but on the basic qualities like “handling small frustrations”. However, the multicultural experience was value added. The new 200 executives were highly open minded and with a positive attitude of “Cultural differences can become the seeds of innovation instead of seeds of dissension.”  He also promoted the transparent communication and “Walk and Talk” behavior among the executives; and in those who played or assumed to play the leadership role. The team spent time at the headquarter on a project by project basis ready for the most successful turnover ever.

Communicating the Change: 

The Nissan Revival Plan (NRP) was the company-wide business initiative that Carlos introduced in July 1999.

Goal Settings:

NRP had clear quantitative and qualitative targets; and had the involvements and effect on Nissan’s component areas. Some of the main strategic goals in the plan were:

  • Return to Profitability (net income after tax) should be positive during March 2000- March 2001   cycle.
  • Operating Margin superior to 4.5 % of scale during March 2002 to March 2003.
  • 50% decrease in debt by March 2003.
  • Reduction of the purchasing cost by 20% by March 2003.
  • Reduce 21,000 jobs to reduce cost by March 2003.


Implementing the change: 

•    Cross Functional Teams: Carlos established 9 cross-functional teams established by two committee members and headed by a pilot. Cross function team became a permanent feature in Nissan’s company-wide business.

•    Production and Development: The key to the success of NRP was production and development. The company was committed to launching 22 entirely new models in upcoming three years. Nissan united the worldwide scattered designers and increased the R&D budget to 3.7%.  These helped the induction of 1000 new engineers.

•    Investment in strongholds: Carlos invested US $930 million in an assembly plant in the US – stronghold of Nissan; and US $ 300 million in Brazil – a stronghold of Renault.

•    Relationship with local suppliers & Dealers: Carlos modified the traditional Japanese system of “keiretsu” with 5000 auto parts suppliers and 600 dealers. Carlos made it clear to the suppliers that their bids and access to the business of the Nissan will be based on cost and quality instead of a relationship. This was a brave move in the Japanese way of doing business.

The cross function teams were successful because they were established at the time of the six months social initiative process “tinkunacuy”. The team had boundary spanning characteristics and open minded approach. The teams were neither top-down nor bottom- up but both. Each team was assigned specific goal ‘make proposals to develop the business and reduce cost’. Each team was highly focused on their goals and working in specific direction “The return of profit” without any further hindrances and time limits

Addressing Organizational Cultural Differences: 

Carlos Ghosan did an exceptional well job in making the fastest turnaround of Nissan. Carlos took initiatives in overcoming the objections of the turnaround.

  • Social Amalgamation: Carlos implemented the social amalgamation between the French and Japanese executives. This gave open minded, creative, boundary spanning leadership team.

 

  • Clear Goal Setting: Carlos gave defined quantitative and qualitative goals and specific directions to achieve them and measure the performance.

 

  • Communication and work commitment: Learning from the Japanese culture, Carlos gave importance to on the work commitment and transparent communication. He included extremely transparent, open, precise, and factual internal and external communication system.

 

  • Restructuring and Formation of Cross function teams: The foundation of the cross functional teams were the key of the turnovers. Also, Carlos restructured the organization structure including the reduction of the board of directors.

 

  • Walk-the-talk culture: What we think, what we say, and what we do must be the same became the “Mantra” of Nissan.
  • Focusing on the strengths instead of worrying about weaknesses: Instead of worrying about the weaknesses, Carlos focused more on strengthening the strong areas – the investment in Missouri & Brazil.

 

  • Modification of the traditional practices like “keiretsu”: It’s not always that one must adjust the culture of the host nation if that is hampering the performance. Carlos made a courageous move and modified the traditional practices like ‘Keiretsu’ which were hampering the performance.

 

  • Female Power: As a traditional Japanese organization, Nissan had only 1% of top management as women. Carlos decided to increase it further today there are 5% participation of women in top management and Nissan is committed to increase by 10%.

 

  • Performance-based growth: Carlos implanted performance based growth system instead of seniority and relationship.

 

  • Leadership Development: Carlos focused more on the leadership development within the organization and creating global “transcultural” leaders that can replicate themselves into the others. He also promoted cross- boundary rotations for the leaders for the leadership development.
  • Visionary Leadership: Carlos himself had visionary leadership traits that made the textbook example of the world’s fastest turnover.

Inquiring Minds:

When Carlos went to Japan, he had some ideas about the culture like food and language. Later, he found out that it is far more than just food and costume. Such as walking into an elevator before a woman would be very “unpolite” in the Western world; however, not to do so will violate the code of Japanese culture.

References:

1)http://knowledge.insead.edu/leadership-management/operations-management/the-transcultural-leader-carlos-ghosn-ceo-of-renault-nissan-1904

2) http://www.economist.com/node/5156760

3)https://hbr.org/2013/09/great-leaders-who-make-the-mix-work

4)http://www.nissan-global.com/EN/COMPANY/PROFILE/ALLIANCE/RENAULT01/index.html

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