Why was the former Nissan Management unsuccessful in turning the company around? Why could they not prevent the slide of Nissan’s ranking market share, etc.?

The former managers of Nissan had been struggling to turn Nissan into a profitable company for eight years. Nissans major problem were the extremely low margins due to its lack of brand power and the very unprofitable cost structure (especially regarding purchasing costs).
Nissan’s organizational and financial structures where very traditional and typical Japanese (e. g. the cross-shareholdings within the kereitsu structures). All previous Nissan CEO’s where Japanese , probably each of them with a long tenure and history in the company. Each CEO was surely skilled and experienced in leading an international company. But it can be speculated that it is much harder for a Japanese CEO to make fundamental changes in Nissan's long-standing operating practices and behavioral norms of Japanese society that are deeply integrated in the corporate structure. The former managers were simply stuck in their Japanese organizational structures and no one wanted to break with their own tradition. In addition, the company advisors, a group of senior managers without line responsibilities, made sure that Japanese business practices were implemented and pursued.
Some examples of these country specific, traditional structures are the kereitsu partnerships and the predominant seniority rule: Nissan was consistently strapped for cash and could not finance the development of its own products. Although Nissan actually had plenty of capital, it was locked up in noncore financial and real-estate investments and mostly in keiretsu partnerships. These partnership structures were typical for Japanese companies to prove each other loyalty but they didn’t really deliver any value. Another issue was the prevailing seniority rule. Nissan’s employees were paid and promoted based on their tenure and age. Regardless of their actual performance, the longer employees stuck around, the more power and money they received. Furthermore, a “culture of blame” existed because managers had no clear areas of responsibility.
What the former management not realized was that Nissan lost its vision. The traditional business practices wouldn’t help Nissan to recover. When Ghosn took over charge of Nissan he made fundamental changes to the company’s organization and operations and broke with many established Japanese business practices. In his report about the turnaround at Nissan he descriped himself as an outsider because he was neither Japanese nor belonged to Nissan before. This neutral position gave him the opportunitiy to analyze Nissan’s problems from an independent point of view and choose the best and most appropriate measures. Japanese business practices are not ineffective in general but they must apply to the corporation. Ghosn described this situation as “looking to national culture for an explanation of a company's failure or success almost always means you are missing the point”. First the corporate culture has to be set up, thus the corporation can recover. And changes in the corporate culture and tradition of a company like Nissan are much easier done by an independent person than by someone who grows into the structures of the previous corporate culture.
Ghosn said that some other major Japanese company’s even followed Nissans lead in breaking with traditions and made similar changes (e. g. loosing the ties of the kereitsu partnerships). They probably also realized that they do not have to stuck with their prevailing business practices but can decide independently what is the best for their company.
What was the rationale for the alliance? What strategic value does this bring to either side?
The rationale for this strategic alliance is that both companies fit together pretty well and are stronger as if they would operate seperately. Together they would be the world's fourth largest carmaker by that time. Both companies will benefit from the merger if the Nissan revival would be successful.Renault took $5.4 billion of Nissan's debt and in return they got 36.6% equity stake in the Japanese company.
Nissan benefits from the merger are pretty simple. Since Nissan had very high depts and no real growth opportunities they simply need capital. Althoug DaimlerCrysler as their preferred counterpart stepped aside during the negotiation process Renault still has the power to finance some part of Nissans dept. In today’s business most company break downs come frome scarcity of capital rather than from a low demand. Another assumption is that since Nissans business practices are aging the company hoped that a strategic shift could bring the turnover. As the time showed many effective business practices were transferred from Renault to Nissan to make the carmaker profitable again.
Renault’s benefits from the merger are pretty obvious, too. Nissan's market power in North America filled an important gap for Renault. The merger with Nissan also made it easy for Reanult to enter the Mexican market since the Mexican government recognized Renault as a partner of the Nissan group. Hence Renault was able to export cars to Mexico much earlier as if the two companies wouldn’t have merged.
After the turnaround both companies benefit from each other since senior managers of both transfer their skills to the other business unit.
Comment on the nature of the fit between the two firms? Please be sure to examine multiple dimensions.
The merger was beneficial for both companies in several dimensions:
Strategic dimension: As already mentioned in the previous section, Nissan's strength in North America was beneficial for Renault since they had no market power in North America. The merger also created the fourth biggest carmaker and hence mance advantages in forms of economies of scale or economies of scope existed.
Financial dimension: The financing power of Renault let Nissan survive. Renault invested quite a lot of capital in Nissan but at the end it paid off for both since Nissan is profitable again.
Cultural dimension: Since senior managers can transfer their skills from one company tho the other they also gain cultural experience. An intercultural merger that operates successful is improving the international orientation of both companies.
Business/Marketing dimension: Renault was known for innovative design while Nissan is an expert in quality of its engineering. They can combine their knowledge to create even better cars. If they don’t do this they at least don’t compete with the same car charactersitics.
What were the key steps involved in executing the Nissan Revival Plan? What were the critical elements that made execution successful?
The fundamental changes can be categorized in financial, cultural and organizational measures:
Financial changes: Nissan was in a persistent cash crunch which hampered the development of their aging product line. One of the first steps Ghosn conducted was the dismantling of the kereitsu investments that locked up a plenty of Nissan’s capital. With this divestment Nissan could finance the update of their products.
Cultural changes: Ghosn initially ditched the senority rule. While Nissan’s employees were previously paid and promoted based on their tenure and age he revamped the compensation system to put the focus on performance. So they build up a company's reward and incentive system which was based around performance, irrespective of age, gender, or nationality. Today high performers can expect cash incentives as well as company stock options as reward for their contribution. Another key step was to give managers well defined areas of responsibility to abolish ther persistant “culture of blame”. He made his employees to accept responsibility. To have line responsibility helped the Nissan managers to see exactly what their contributions to Nissan are.
Organizational changes: Ghosn’s main organizational changes were to impose cross-functional temas and cross-country-teams to develop the Nissan Revival Plan and keep the company “fit and awake”. A set of cross-functional teams (CFTs) were imposed to let line managers see beyond the functional or regional boundaries that define their direct responsibilities. Herewith a manager could think in new ways and challenge existing practices as they wouldn’t have done it before. To give the CFTs the necessary authority within the organization Ghosn appointed two executive managers to each team. The teams also helped Ghosn to explain the necessity for change and to project difficult messages across the entire company. Finally the cross-functional teams addressed all the key drivers of Nissan's performance and after three month came up with a detailed blueprint for the turnaround plan. Since the turnaround happened the CFTs have remained an integral part of Nissan's management structure. The cross-company teams (CCTs) were imposed to improve cooperation between different parts of the company. In Nissan the some regional units didn’t share much information and expertise with the rest of the company. Ghosn changed the organizational structure so that four management committees supervised Nissan's regional operations instead of several regional heads that work independent. This step was also done to impose transparency on the entire organization and to show what everyone contributes to the organization.
The most critical element for Nissan’s turnaround and establishment of a new corporate culture in Nissan was to engage Carlos Ghosn as the right person in charge. He was multicultural and multilingual and most important he was used to challenging situations before as he already contributed to the turnaround at Renault or Michelins merger with Uniroyal Goodrich. Since Nissans main problem in operating business were the low margins due to high purchasing costs, Ghosn the “cost killer” with a good understanding in cultural isues was a very suitable candidate. He conducted the Nissan turnaround so successfully that he gained worldwide popularity and many awards for good leadership.
Regarding his changes to the organizational structure a critical element for the turnover was to get the commitment and trust of Nissan’s employees. Renault was always careful to protect Nissan’s identity and dignity as a company.They successfully reached this goal for one simple reason, as he said, because they showed respect for Nissan as a company. Even from the very beginning they saw a chance in Nissan and didn’t perceive the investment as being too risky, like DaimlerCrysler did. So as DaimlerCrysler stepped aside, Renault decided against exploiting its short-term bargaining advantage but rather treat Nissan an equal partner for a long-term relationship. Another very important aspect is the way how Ghosn imposed the changes: He did not dictate them from above but rather let Nissans own executives develop the plan for Nissans Revival. By showing his respect to the company he also strengthened the motivation of the company’s employees.
Identify some of the key lessons about cross-border deals that can be drawn from the experience of these firms?
There are five key lessons that can be drawn from this case study:
1) Show respect when merging with another weaker company. During a merger in which one partner is superior to the other it is better not to exploit this advantage. A merger of two companies is usually seen as a long-term investment due to the organizational effort that comes with it. Exploiting a superior position in a partnership will possibly end up in a non-cooperative situation in which no company succeeds. Respecting a partner as being equal will probably pay off later.
2) Find solutions from within the company: Especially for a turnaround or in a similar situation where the employees might not share the CEO’s point of view – the employees should be involved. I’m the opinion that the employee’s engagement will assure their commitment and acceptance for the consequences. In the case of the Nissan revival it was a key element to let the own employees develop the actual revival plan. There is no way that the acceptance of a turnaround could be higher as if the people who are affected by some measures planneded these measures by themselves.
3) Break down traditions before traditions break the company: As the case shows traditions are not always the key for success. When traditional business practices work for one company they might not necessarily work for every company.
4) Develop a strong corporate culture as a key element for company’s success. As the Nissan example shows a corporate culture is one of the key elements a company builds on. Ghosn stated that “a good corporate culture taps into the productive aspects of a country's culture...” and not the other way around. Since the culture of a corporation is an integral part that affects every part of the company it should be treated with dignity and respect. This will protect the company's identity and the self-esteem of its people.
5) Think different and consider changes others might have not considered before. Since time passes and circumstances might change, a comprehensive analysis of the situation is a key element of leading a company or to change the strategy. If the strategy of a company needs to be changed, listen first, and then react.
What theory can be formed from this case?
The most import aspect of this case study is that a company cannot succeed unless a stable and sustainable corporate culture is being created. The corporate culture is the integral part of a company that connects all parts and provides motivation and identification for the employees.