Case Studies: Saving the Business without Losing the Company 1.0 Introduction
Nissan’s position as a profitable and viable global automaker was in complete default by 1999. The once-strong company had lost money for six of seven consecutive years, beginning in 1992. Its global market share was in decline and the company was losing, on average, US$1,000 per vehicle sold in the United States. Carlos Ghosn knew that regeneration of the company product was imperative, but the product alone would not save the company. Thus, Louis Schweitzer, CEO of Renault, asked Carlos Ghosn to lead turnaround at Nissan. The two companies had agree to a major alliance in which Renault will cover the Nissan’s debt in return for 36.6% equity stake in the Japanese company. The merge would be the world’s fourth largest carmaker. The alliances deal made sense for both sides: Nissan‘s strength in North America filled an important gap for Renault, while Renault’s cash reduced Nissan’s mountain of debt. The capabilities of the two companies were also complementary: Renault was known for innovative design and Nissan for the quality of its engineering. Carlos Ghosn failed merge the company with Volvo before where they have some controversial decision about European plant closures, difficult for a French company with a tradition of state control.
Furthermore, Nissan’s debt amounted to more than $11 billion even after the Renault investment where this quite literally brings a “do-or-die” situation: Either they’d turn the business around or Nissan would cease to exist. Meanwhile, it was also extremely delicate situation where in corporate turnarounds, particularly those related to mergers or alliances; success is not simply a matter of making fundamental changes to a company’s organization and operations. But we also have to protect the company’s identity and the retain self-esteem of its employees. Those two goals- making changes and safe-guarding identity-can easily come into conflict; pursuing them both entails a difficult and sometimes precarious balancing act.
However, Carlos Ghosn has succeeded the turnaround strategy in less than three years. Nissan is profitable again, and its identity as a company has grown stronger. They did it with two key ways. Firstly, involve Nissan own managers, through a set of cross functional teams, to identify and spearhead the radical changes that had to be made. Secondly, create a cross functional teams where allowing them to develop a new corporate culture that built on the best elements of Japan’s national culture. Company culture is plays important roles where it determined how the employees going perform as the company culture.
2.0 Breaking with Tradition
At the close of 1990s, established business practices were wreaking huge damage on the company. Nissan was strapped for cash, which prevented it from making badly needed investments in its aging product line. The competition, by contrast, debuted new products every five years where Toyota’s entry level car at that time was less than two years old. Nissan had cut back on product development because to save money. Nissan faced with persistent operating losses and a growing debt burden, the company was in a permanent cash crunch. Actually, Nissan had plenty of capital-the problems were it was locked up in noncore financial and real-estate investments.
Actually, Nissan’s problems weren’t just financial, however. The fundamental challenge was cultural. Like other Japanese company, Nissan paid and promoted its employees based on their tenure and age. The longer employees work around, the more power and money they received, regardless of their actual performance. Inevitably, that practice bred a certain degree of complacency, which undermined Nissan’s competitiveness. Buyers looking well designed high quality products at attractive prices, delivered on time instead of care how and who does it. Thus, Nissan decide to ditch the seniority rule. The...
References: 1. http://www.qfinance.com/contentFiles/QF02/g6nvv430/13/0/turning-around-financial-performance.pdf
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