Nissan free essay sample

Rescuing Nissan from Crisis Running a business successfully can be difficult if we do not know how to manage the entire company. When it is a small business, it is relatively easier to find the problems, and the earlier the problems were found, the easier to fix them. However, when it comes to a big company, it becomes harder to see problems because they usually take time to rise to the surface. Therefore, by the time we find out what is wrong, it can be too late to fix them. The company can lose a lot of money, and at the worst, it can go bankrupt. Nissan, which is the third largest car anufacturing company in Japan, was about going bankrupt in 1999. Nissan once sold one-third of all vehicles in Japan, and in 1975s foreign automakers regarded Nissan as No. l imported car in North America (Magee, 44). However, its debt has risen up to $22 billion in 1999. In fact, Nissans domestic market share, which peaked at 34 percent in 1974, declined to below 19 percent in 1999. Nissans global market share declined from 6. 6 percent in 1991 to 4. 9 percent in 1999, eight-year period in which the company had Just one profitable year (Magee, 44). How could uch a successful company, which has been in car industry for over 73 years, become to be about bankrupt? And, how could Nissan revive? In 1999, Nissan seemed that they only had a few choices to survive, either get help from the Japanese government or get help from foreign automakers. In 1999 Nissan chose to Join hands with a foreign company, Renault, which had first lost 1 billion in ten years in 1996, and was about to divested the majority ownership by the French government (Magee, 32). This didnt seem to be a good candidate for Nissan for alliance. Although the alliance between Nissan and Renault seemed that Nissan was aking useless effort, the alliance actually has been successful, because a man, now President and CEO of Nissan, has been playing a big role in Nissan revival restoring confidence in the company, hope, and profit. The alliance between Nissan and Renault appeared to be meaningless because Renault did not seem to be the proper company to rescue Nissan. Even though Renault reported deficit of 12. billion in 1984, and became profitable again by 1997 after Ghosn was in charge, no one thought that Renault could help Nissan (Magee, 34). Since Nissan was negotiating with Daimler Chrysler and also Ford, which two ompanies were much larger companies therefore had more resources to rescue Nissan, Renault even looked powerless and unsuitable for company to ally with (Magee 37). In fact, when Renault purchased 35 percent of equity stake, which resulted in injecti ng $35 billion to get some control of Nissan it was clear that it was not enough to cover $22 billion deficit at all (http://en. ikipedia. org/wiki/renault). Even after Renault invested more, the debt amounted to more than $11 billion (Harvard Business Review, Carlos Ghosn 38). Yet, while people regarded the alliance between Nissan and Renault meaningless, both companies had different points of iews from others. The alliance between Nissan and Renault actually was beneficial for both companies since the capability of two companies were complemental. Nissan had Therefore, Ghosn assumed that Nissans problems were in management. On the other hand, Renault was known for its innovative design. In addition, Renault wanted to advance on outside of Europe, so that it made more sense to unite with Nissan than to unite with European companies. Furthermore, Renault was afraid of putting the company in a position where they could lose the majority of control over company f they would unite with other bigger and stronger companies (Magee, 36). In short, ones weakness was ones strength and vice versa. Eventually, after one year of negotiation, and Daimler Chrysler pulled out of negotiation on March 11, 1999, only choice left for Nissan was Renault. Schweitzer, CEO of Renault, and Hanawa, CEO of Nissan signed the paper on March 27, 1999, when Nissans bonds status was about to be reduced to Junk bonds (Magee, 41). This was how much Nissan was in danger. However, Schweitzer did not try to take over Nissan like Daimler Chrysler tried to do; herefore, consequently the alliance failed, rather he tried to keep both companys identities. Moreover, instead of expecting profits from merge right away, he expected the favor to be returned in the future when Nissan would become profitable again. The fact that Renault had leaned from the fail of merger between Volvo also led the alliance to be successful (Magee, 42). It was in March of 1999 when Carlos Ghosn was asked by Lois Schweitzer to go Japan for Nissan revival. Carlos Ghosn was natural candidate when we consider what he had done in his career. He is the CEO of Michelin and is also Executive Vice President and CEO in Renault (www. kantei. go. Jp/Jp/m. magzine/). Ghosn was assigned to be Nissans chief operating officer in 1999, which all final decision was his. Ghosn says It is different when you are the one making the final decision (Magee, 10). At this point, he had to face two challenges. One was the business challenge and the cultural challenge was the other because Japanese business culture tends to be shut to outsiders. Since Nissans problems seemed to be in management, the massive change was indispensable. However, how did Ghosn initiate to reform such a huge company? It is important to start from nothing when one tries to make changes in a foreign company. When Ghosn arrived in Nissan, he didnt come with the solutions. He only had general ideas of how deep the Nissan was in danger. He strongly believed that it was important to abandon the mind of any preconceived notions and ideas when meeting new people, initiating new challenges in new places (Magee, 54). This way he can avoid being stereotyped about other cultures or companies. In addition, Ghosn says, This is extremely important in management. You must start with a clean sheet of paper because the worst thing you can have is prefabricated olutions You have to start with a zero base of thinking, cleaning everything out of your mind (Magee, 54). Therefore, he started from stopping by automotive design centers and manufacturing planes in Japan, Europe, and North America. He absorbed information from every other level of employees, and he actively participated in every meeting which added benefit of shortening the distance with others who didnt have good impression of him- le cost killer (Magee, 55). He used this information to picture and to chart in order to identify the problems that created a disjointed, unprofitable, and out of date brand. According to this information seeking of profit; focus more on chasing competitors than focus on customers needs; lack of cross-functional, cross-border, and intra-hierarchical lines of work in the company; nonsense of urgency; no vision; and no long team plan (Magee, 60). This was how Ghosn observed the problems. Yet, Nissan was trapped in Japanese business tradition called Keiretsu, which is business groups linked by shared values, business ties, and cross shareholding (Magee, 47). The characteristic of Keiretsu is that it has the cross-holding of stock; so this prevents the pressure of being taken over from foreign companies. This Keiretsu system functioned effectively for many years after the WWII when Japan had dramatic economy growth, but Nissan could not keep up with the increased cost due to the Keiretsu (Magee, 48). Nissan had to buy the parts from Keiretsu even though those suppliers had to raise the prices. The business culture, Keiretsu which had become the weaknesses of company, had to be fixed fast even though these werent easy to come up with solutions. How did Ghosn, non-Japanese, break the business tradition of Nissan and approached to these problems? Structuring the CFTs (Cross-functional Teams) played a big role in approaching Nissans problems since Nissan required immediate change and Ghosn knew that problems could be solved from inside the company. He also knew that revitalizing the sprit of the company from inside out would bring Nissan quick and good results (Magee, 66). Furthermore, he had proven through his career that CFTs worked and was useful not only to rescue such company but also to gain long lasting profit. Ghosn made the decision to form nine cross-functional teams, consisting of approximately nine to ten members each. The members were chose mostly from Nissans middle managers corps, and a group of employees with specific line responsibilities. The members also selected from different operational regions including North America, Europe, and general overseas markets, breaking functional and cultural barriers (Magee, 69). The way of forming CFTs from different disciplines with common ground (example: purchasing and engineering) gave the teams not only the ability to discuss varieties of problems from different point of views but also the ability to prevent one opinion from monopolizing the each team decisions (Magee, 69). In addition, keeping each team within nine people encouraged the team to come with rapid and effective solutions. Even though CFTs were seemed awkward at Nissan at first considering Japanese tradition is that executives meet with executives, and they rarely discuss the problems with workers at lower levels, Ghosn knew eliminating the tradition would help Nissan come up with better solutions (Magee, 70). In short, the CFTs were structures so that members could access to all other teams information within the company but the each team was told to make sure time was spent identifying and finding answers to problems by the deadline (Magee, 71). Nissan Cross-Functional Teams Overview. CFT Composition Leaders Two leaders are selected from top executive ranks representing different isciplines with common ground (example+ purchasing and engineering). Leaders team (Magee, 72). Pilots Hand-chosen by top management, pilots are responsible for keeping each team on task through agenda, research, and dialogue (Magee 72). Members Middle managers (typically nine) are selected on criteria based on areas of focus and leadership qualities (Magee, 72). Subteams Composed of CFT team members and other company managers selected by the CFT team, subteams are charged with exposing specific issues with more depth (Magee, 72). CFT Guidelines Nothing is off limits to discuss and explore. Teams are not to be hindered by raditions or avoid sensitive corporate issues. Teams can also look into any aspect of company operations. Teams should come up with ambitious yet realistic ideas (Magee, 72). Teams have no decision-making power; they can only make recommendations to the executive committee (Magee, 72). Having specific visions was indispensable for Nissan to revive. It was October 1999 when Ghosn announced his Nissan Revival Plan (NRP) to the world. Here are some of the Highlights of the NRP highlights included: costs by 1 trillion yen Cut number of parts and materials suppliers in half Reduce operating Reduce net debt orm 1. 4 trillion yen to less than 700 billion yen by FY 2002 (a reduction of $6 billion after the capital injection by Renault) Create new product investment and rollout, including launching of twenty-two new models by 2002 Reduce global head count by 21,000 Reduce number of vehicle assembly plants in Japan from seven to four. Reduce number of manufacturing platforms in Japan from twenty-four to fifteen (Magee, 85). Ђ Renewed emphasis on improved model design (Shiro Nakamura was introduced as Nissans head of design) and reduced lead time getting a car to market. Simplified management structure Ђ Performance-based compensation and advancement programs for Employee bonuses linked to global results (Magee, 94). The management significant cost reduction was his primary objective in order to make Nissan profit able. However, to make Nissan profitable again, which Ghosn said the reduction would have to make for Nissan to achieve a consolidated operating profit of 4. percent or more by FY2002, would not happen without closing significant numbers of Nissan Japanese manufacturing operations (Magee, 86). In fact, Nissan had given away $1,000 for every car it sold and the purchasing costs were 15% to 25% higher at Nissan than Renault (Ghosn, 37). Ghosn aimed to reduce one trillion yen in costs in three major areas global purchasing (breaking up Keiretsu and asking for concessions from all suppliers): manufacturing; and administrative costs (Magee, 86). 21,000 Jobs were to be eliminated in the world that included 16,000 in Japan. This made much sense because Nissans annual production of 1. 28 million vehicles was only 53% percent of manufacturing capacity utilization. NRP made it clear to reduce the capacity by 30 percent which expected to raise utilization rate to 83 percent by RY2002 (Magee, 86). Moreover, Ghosn had cut Keiretsu relationships with cost. Therefore, he decided on his NPR to cut the numbers of material and parts suppliers by half from 1,100 to 600 or few by the end of 2002. The cutting the numbers of suppliers promoted the purchasing to be centralized and globalized (Magee, 88). The decision to cut Keiretsu was extremely tough, but Ghosn promised to suppliers if they helped Nissan meet the new objectives which was to reduce the cost, these suppliers would be rewarded with more business (Magee, 88). Nissan attacked the NRP so aggressively that not only its goal was reached one year earlier han Nissan expected, but also Nissan reached it with record profit (Magee, 143). Changing within Nissan was even tougher because Carlos Ghosn was trying to go to against Japanese business traditions. Since in Japan the hierarchy used to be admired, Nissan was still going with the traditions. He thought this has to be change to go global company. Here are some changes for recourse under NPR. Seniority was eliminated as a means of company advancement Senior executive positions found to be redundant in the global structure were consolidated Compensation schemes were revamped to reflect higher pay based on strong performance Bonus pay was tied to the NRPs success for all employees Frivolous expense accounts were eliminated (Magee, 127). At the beginning promoting younger employees caused some minor problems because Nissan like other Japanese companies, previously paid its employees based on tenure and age. However, Ghosn didnt stop there, rather he launched a new plan; NISSAN 180. Now that it became clear that struggling Nissan had been transformed into a good company; Nissan tried to become a great company through NISSAN 180. Its target was to increase sales growth to one million more units sold, higher operating margin y 8 percent, and zero net automotive debt all within three years which was by the end of fiscal year 2004 (Magee, 164). Through NISSAN 180, Ghosn created Value-up Program (V-up) which functioned similar to CFTs. V-ups purpose was to offer continuous process improvement and field-level problem solution. In this way problems could be solved in a short period of time (Magee, 206). Even though the new plan was more aggressive than NRP, all objectives came from data that Ghosn gathered from each CFT and precisely evaluated to make it achievable. According to Shiro Tom, a senior vice president in Japan, he summed Ghosns style this way: make he objectives high, yet achievable; make all roles and levels of responsibility clear; makes with speed; checks on progress; evaluates results based on facts (Magee, 170). Eventually, NISSAN 180 was accomplished on September 30, 2005, while two plans; an operating profit margin of 8 percent; and zero net automotive debt were accomplished in the first year of the business plan (www. nissan. global. com). Refer for the key financial data and trend information on page 15, 16, and 17. Now the Nissan has a big project on going. Nissan has been developing the Zero Emission Vehicle, ZEV, to sell on the market near in April. With this new technology, Nissan will be the first car manufacture company to introduce the ZEV in the world. The fact that Carolos Ghosn has developed the ZEV tells the entire world that Nissan is not only famous for its technology and innovative products, but it also showing that Nissan cares for the environment. This has become a nice marketing both for possible customers and also government. In June 23, 2009, the U. S. Department of energy has manufacturing plant to produce zero-emission vehicles and state-of-the art lithium- ion battery packs to power them. This is one of the loans among three under the Advanced Technology Vehicles Manufacturing Loan Program, which the loan total is $25 billion. The loan will help Nissan to produce electric vehicles, which emit no gas and are powered only by electricity. This loan, in fact, will help both Nissan and entire United States because it will expands the plants and they will be required to hire more employees. This is great opportunity for America when the economic condition is in recession. Portland General Electric in Oregon is now committed to promote the development of networking the recharging stations. Carlos Ghosn had to e the first to take all these advantages to initiate the ZEV. Ghosn has played a tremendous role in the Nissan revival. Emil Hassan, who is a top Nissan North America executive, says Maybe only Carlos Ghosn could have saved Nissan at that every moment in 1999 (Magee, 227). Through Nissan Revival Plan, Nissan has restored hope, profit, and confidence in the company. In addition, NISSAN 180 has created lasting profitable growth, set the company above competitors in terms of profit margins, and regain consumer satisfaction. Nissan has become a company that is able to compete in the global bases. Yet, Nissan will keep on growing. While the oil price has been increased and the importance of hybrid cars has been emphasized these days, Nissan has reached to an agreement with Toyota to tie-up on the hybrid technologies recently which also is expected to contribute long term profitability (nissanglobal. com). In addition, Nissan has been negotiating for alliance with 6M, which if they reach to an agreement, Nissan will become the largest auto maker in the world, and they will find the way to benefit from Joint synergies and share ideas at all levels, Just like Nissan made a complete urnaround by Joining with Renault.