SBS TBS903 Intake A- 2011 Managing People in Organisation
³Nissan 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 . page 6.1- Plants 6.1- Plants capacity Reduction ........................................................ page
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6.2- Personnel 6.2- Personnel Reduction ................................................................ page page
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6.3- Reducing 6.3- Reducing Procurements Costs .................................................... page page
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6.4- Disposing of Non-core Assets .................................................... page . page 10
page 6.5- E stablishing stablishing Cross-Functional Cross-Functional Teams (CFT¶s) ............................. . . page
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7 Conclusion............................................................... Conclusion..... .......................................................... ............................. page 11 8 Appendix......................................... Appendix................................................................... .......................... ...........................page 1 2 Figure 8.1 (Manufacturing capacity 1999/2002) ......................................... page page
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........................... ..... ............................ ............................ page Figure 8.2 (NRP Workforce Reduction) R eduction)...................... page
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Figure 8.3 (NRP Purchasing Cost reduction) .............................................. page page 13
9 References list......................................................... .............................page ................... ..........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, T oyota, 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 µThe ¶ the Japanese manufacturing industry was ranked No.1 in their Ritsumeikan Trust 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 µ N issanits issanits¶ they believed that Nissan never going to collapse referring to the enormous size of µ keiretsu¶ investment system (Nayebpour & Saito 2007 ). However, the whole automotive aut omotive 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 ³by 25% since the peak year of Nissan i n 1985. As well to the domestic market had declined from 18.6% in 1989 to 13.3% in 1999´ (Nayebpour (Nayebpour & Saito 2007). Nonetheless, it took the third place plac e in transportation manufacturer in Japan at the t he late 1990¶s. Whereas, during those seven years the headquarter management in Japan attempted several times to tra nsform the company, but unfortunately it seems they been stuck in their business traditional practices called µ keiretsu¶ investment system. system. As a result for that, Nissan grown to fail to be in debts around $22bln, adding on that extra $20bln frozen in its µkeiretsu¶ partners 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 unimaginat ive 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 ³the 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 ³You 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 eac h 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 experienc experiencee in his career as a s 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 µl e cost kill er¶ er¶ 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 ³Nissan 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 a nd structural. 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
eiretsu K eiretsu
system, the need to invest a big amount of money in many other K eiretsu eiretsu 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 ³believed that loyalty and cooperation were fostered among members within their keiretsu system since the 1950´ (Millikin & Fu 2003). This attributed to ³more 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 Page 6 of 16
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). ³They 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 µadvisors¶ or µcoordinators¶ 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 implement ing this plan into Nissan (Storm (Stor m 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. µ Le cost kill er¶ er¶ 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 corporate to a worldwide corporate corporate (Nakae (Nakae 2005).Therefore, 2005).Therefore, Nissan¶s executive¶s board stated three brave commitments, ³if 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. Page 8 of 16
Thirdly, to secure net automotive debt reduced to less t han $7bln by fiscal year 2002´ (Nissan Annual Report 2001). Believing in what Ghosn said about transparency within organisation its only will ³be 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
lants nts a P l
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). 2005). (See figure f igure 8.1)
6.2
P ersonne ersonnel Reduction
Moreover, Ghosn had to make a critical decision based on his previous cost reduction plans experience. experience. By reducing the workforce workforce by 14% around around 21,000 jobs of of the overall 148,000 worldwide workforce (Gozaimasu & Ami 1999), by attrition, increased use of part-time workers, spin-off spin-off and early retirements, as f ollows 4,000 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 6.3 Reducing P rocurements rocurements Costs Ghosn emphasized in the plan on cutting cost from all aspects by 2002 ³this 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 ³reduce 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 E stabl ishing ishing Cross-Functiona l Teams (CFT¶s) As Nissan and Renault merged but they still operates in different locations. Ghosn had stated ³I 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, ³They had no decision making power, they only reporting to the executive committee in Nissan and they have the access t o all the company information´ (Ghosn 2002). 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 µ keiretsu¶ 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 issan Syndrome¶ , ³which is companies to imitate with in conducting their businesses businesses called µ N issan
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). Page 11 of 16
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9 Reference list 1. Bloomberg News 1999, µNissan Motor to Unveil Restructuring Plan¶, l os os Angel es es times journal, accessed on Feb 19, 2011 http://articles.latimes.com/1999/oct/18/business/fi-23573 2. Business week 2004, µNissan Boss: Carlos Ghosn saved Japan's No. 2 carmaker. Now he's taking on the world¶, Bl oomberg oomberg Magazine , accessed on Feb 19,2011 http://www.businessweek.com/magazine/content/04_40/b3 http://www.busine ssweek.com/magazine/content/04_40/b390201 902012.htm 2.htm 3. Cooney, K 2004, µNissan Syndrome Syndrome and structural reform in Ja pan will it take A GAIGIN?¶, Asian P erspective erspective , Vol. 28, No. 2, pp5-34, accessed on Feb 20,2011 http://www.asianperspective.org/articles/v28n2-a.pdf 4. Culpan, R 2002, Gl oba Publishi ng, obal Business All iance: iance: Theory and P ractice ractice, Greenwood Publishing, USA, ISBN: 1-56720-313-2, accessed on Feb 21,2044 http://books.google.com/books?id=2o9W4JqCDBQC&pg=PA135&lpg=PA135&dq=%22I+a m+not+going+with+any+preconceived+ideas%22&sou m+not+going +with+any+preconceived+ideas%22&source=bl&ots=g7hPekh56c&sig rce=bl&ots=g7hPekh56c&sig=FrNR =FrNR wdz8T_8FgrzAqp05OsmRoA&hl=en&ei=rcBhTaDiH4GKuAO9w6TmAg&sa=X&oi=book_result&ct=result&r esnum=1&sqi=2&ved=0CBUQ6AEwAA#v=on esnum=1&sqi=2&ved =0CBUQ6AEwAA#v=onepage&q=%22I%20 epage&q=%22I%20am%20not%20goin am%20not%20going%2 g%2 0with%20any%20p 0with%20 any%20preconceived%20ideas%22 reconceived%20ideas%22&f=false &f=false 5. Emerson, V 2000, 2000, µAutomotive news: An Interview with Carlos Ghosn, Pr esident of Nissan Motors, Ltd. and Industry Leader of the Year¶, J ourna ournal of Wor l l d d Business, p4, accessed on Feb 16, 2011 http://www.users.on.net/~kyeh/International%20business/2/an%20 http://www.users.on.net/~kyeh/International%20 business/2/an%20interview%20with%20 interview%20with%20carl carl os%20ghosn.pdf
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7. Gozaimasu, O & Ami, M 1999,¶ Restructuring Nissan¶, the E conomist conomist , Tokyo, accessed on Feb 20,2011 http://www.economist.com/node/32 http://www.econom ist.com/node/325904 5904 8. Hays, J 2010, Nissan: Facts and details, accessed on Feb 18, 2011 http://factsanddetails.com/japan.php?itemid=923&c http://factsandde tails.com/japan.php?itemid=923&catid=24&subcatid=15 atid=24&subcatid=157#871 7#8711 1 9.
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