Carlos Ghosn: Nissan and Renault Case Study
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What are the different management practices that are unique to Japanese organisation?
In the basis of Japanese managerial culture is the so-called Ringi principle. It is applied in the majority of big Japanese corporations, be it Sony or in our case Nissan. This principle focuses on the consensus-oriented decision making. As Europeans, we first understood it as involvement of managers of all levels in the decision making, Japanese think of it differently. Decision is made by a senior manager and lower-rank employees simply accept it. It is not common for Japanese managers to come to their boss and express their opinion on something and especially object his decision. Reason for this might hide in great respect that Japanese employees have towards senior managers – by doubting seniors decision, you doubt also his expertise and his ability to take the position.
We can also see the importance of seniority in the way Japanese approach promotion in the company. Rather than being promoted based on their performance, employees are promoted judging on the time they spent with a particular company. That kills-off a possibility of younger, more energetic people getting in the senior management and enhances the conservativeness present in the company. This takes us to the next important attribute of Japanese managerial practice – Lifetime Employment. People dont tend to switch jobs, preferring to stay with one company for their whole career. As mentioned above, they are awarded for their loyalty by promotion as they stay in the company longer.
Relationships with suppliers and business partners are really important and we can see it on the example of Carlos Ghosn not attending the Christmas party organised by the suppliers, it was shown as lack of respect. Japanese, however, take it further by applying Keiretsu System – basically a set of interlocking businesses and shareholdings. In the case study we saw, that before arrival of Ghosn to Nissan in 1999, the company was spending a lot of money on equity purchases of its suppliers.
Case study shows that Japanese companies are strongly subject to sectionalism – meaning that departments are somewhat isolated from each other. Every department performs its own task and is reluctant to communicate with other. In the case of Nissan it meant that departments were not communicating when company faced problems and were unable to see the problems from different perspective, which would help to solve it. Problems that Ghosn experienced in Nissan when imposing change also show that Japanese are highly conservative and reluctant to accept change.
Do these Japanese Practices followed by Japanese organisations enable a company to remain competitive in changing global economic environment?
Japan is one of the most developed countries in the world with companies like Sony and Toyota being the leaders of their market. Sony has losses, but they are mostly due to economic crisis of 2008, however the company is increasing its revenues for the last three years and moving out of the recession. Toyota is the worlds biggest manufacturer of cars and the first one who entered the niche for hybrid cars, being a total success (this is a very good example of the high technological power of Japan). Both companies have and had through their entire history, one exception for Sony, CEOs who are Japanese. On the other hand, Sonys CEO, Kazuo Hirai, is implementing some western practices in his way of leading the company, planning to cut of approximately 10,000 jobs and other types of cost cutting.
Overall, Japanese companies are one of the most innovative in electronics and car manufacturing. This creativity contradicts with overall “slow to accept changes” and conservative vision of Japanese management style. As mentioned above – are really hard working and able to achieve goals at any cost. In the modern world, qualities and values in the basis of Japanese managerial practice are advantageous, however to achieve significant result the employees must be lead by innovative, powerful CEO who sets precise goals and keeps the motivation high.
However, their strategies come in contradiction with the Western style of management. Cost cutting, life time employment and promotion based on seniority rather than performance are some of the major differences. If Carlos managed to solve some of the issues in order to make the company successful again he still struggled with other issues that he didnt managed to fix like international team work. He didnt manage to make engineers from Renault work together with the engineers from Nissan, as the letter, even if they admitted the superiority of Renault models were reluctant to adopt their technology and platform. It wasnt until Carlos was appointed as CEO of Renault as well that the two companies managed to release a model together: Renault Modus based on Nissans Micra model- which saved Renault over $500 million a year. However, until know, it never happened the other way around.
The strong conservative mentality of Japanese major companies it is definitely a drawback in some cases, however, it is also a part of what makes them unique, strong and technologically innovative.
What are the reasons behind the problems at Nissan? Was it wise to appoint an outsider as the CEO of Nissan?
There were numerous reasons for Nissan failing before the appointment of Ghosn as their CEO, both of strategic and cultural background. First of all, the company rather than focusing on the long-term vision and steady growth opted for short-term growth. We see it as an attempt to attract investors for that particular moment that would enable further growth. This strategy failed time after time and there was no reaction to that. Another important mistake made by Nissan management in 1990s is equity purchases of its suppliers (Keiretsu system mentioned above). First of all, it consumed the resources that could have been sent towards the development of new models or improving the ways of production. Second, Nissan obliged itself to buy parts from these particular suppliers, closing itself off from better offers by other companies. This resulted in higher production costs and higher price of cars that had negative effect on competitiveness of production on the market. Another factor that contributed to high production cost was ineffectiveness of the production lines – cars were made on 24 platforms, distributed between 7 assembly plants. Lack of funding for development of product line resulted in car models being outdated and not interesting to the market. Brand recognition kept falling throughout the 90s As a result market share fell from 6.6% in 1991 to 4.9% in the end of the 1990s.