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Efficiency Improvements and Trade-off’s
Ghosn’s first act of efficiency was to minimize the time uncovering the problems hounding Nissan. He did this by creating 9 functional teams who would be looking for all possible faults. The Japanese avoid public finger-pointing and value face saving. This approach could have offended and demoralized many managers.
Production capacity was reduced to match current demand levels. Factories were closed (Belson, 2002) causing a 14% reduction of the workforce. This was highly effective but it was more painful for the Japanese who trusted in life-time employment. That bond of trust was surely damaged.
Sales efficiency was improved by retaining only the car platforms and power trains that were selling. The customer perception of Nissan for product variety may have been tarnished but profitability was surely improved.
Lastly, purchasing efficiency was improved by practicing volume pricing which drove unit prices down. In retaining only a small number of high-volume suppliers, the unpleasant effect was ending the relationship with many long-time small suppliers. A great risk was taken in a large impact if any one of these few suppliers will underperform.
Adaptation Improvements and Trade-off’s
Customers were not attracted to Nissan’s designs and high-quality engineering wasn’t enough to generate sales. Ghosn gave back the power of the designer over the engineer and hired a creative designer to that effect. This may have demoralized the engineering group but the better results from this move should justify it.
Throughout the company, there was a need for more productivity and one way to boost that was by changing the compensation scheme which would motivate employees to be more productive. The idea was to change the basis for salary increases and bonuses from age and seniority to merit and performance. Stock options were also included in the new scheme. This led to the retirement of weaker managers which is another stressful undertaking. The merit approach practically dismantled the notion of lifetime employment and was against the grain of a long-standing Japanese business tradition. Surely, there were resentments and demoralizations but at the end of the day, the better employees survived and thrived.
Human Relations Improvements and Trade-off’s
The shift to a meritocracy inevitably made many retirements and terminations. Ghosn compensated by providing assistance to those affected as he managed these transitions by early communication to the affected employees. Instead of closing subsidiaries which would take away jobs, he sold them which allowed the employees to continue working. He also offered early retirement so employees can use the separation pay to make their personal adjustments. These measures generated more work for the HR department but it gave an impression that the new management still cares for people.
Many dealerships were managed by former executives but they were managed poorly and Nissan was tolerant. Instead of closing or selling these dealerships, Ghosn strived to improve management so these former executives can keep their posts and he earned goodwill for this as the Japanese value supporting long-time loyal employees. This policy though prevented him from putting the best people possible in those positions.
Change Management Practices
At the very start, Ghosn solicited ownership and investment in the challenges of the company when he appointed many managers in the cross-functional teams tasked to discover problems. This was a crucial strategic move that will indirectly recruit the people to his cause rather than him dragging them to cooperate. He also maintained good morale because he showed recognition to these managers’ capability to face the huge challenges.
The difficult transition from seniority-based pay to a merit-based one was moderated introducing motivation through new bonuses, higher salary increases and stock options. The idea is to give back what was taken away. In this case, job security was diminished but higher compensation was made possible.
Throughout the transformation process, Ghosn practiced astute communications to guide the employees to accepting the major changes. In the anxiety-filled lay-offs, he informed early to those who would be affected; he was honest, sensitive and respectful. (de Vries, et al, 2006)
Ghosn inspired everybody by a declaration of total commitment to the vision of revival. He stated that he and his management team would resign if they failed. This is a gesture of leadership that rallied employees to accept the necessary changes.
Traits and Skills of Ghosn
Ghosn was humble enough and realistic to quickly engage the Japanese managers to help him uncover and detail the problems (Snyder, 2014). Rather forming a team of his own and leading it, he showed his great skill in delegation. He was sensitive as well on the cultural aspects of the Japanese worker. He knew that it was more acceptable for them to admit of shortcomings in private rather than others pointing them out in public.
He was decisive but considerate as he was not afraid to change long-standing questionable practices like those in purchasing and in car design. They would be unpopular so but he clearly explained so he can a get buy-in from affected parties.
Ghosn showed sharp analytic and problem solving skills when he correctly identified what ailed the various operational areas of Nissan. He showed courage in pushing for hard solutions in the face of a strong culture that can be contrarian.
References
Belson, K. (2002, October 23). Big Turnaround at Nissan Leads to Record Profits. The New York Times: Business Day. Retrieved June 23, 2016 from http://www.nytimes.com/2002/10/23/business/big-turnaround-at-nissan-leads-to-record-profits.html
de Vries, M.K., Ting, A., Florent-Treacy, E. et al. (2006, 01 March). Carlos Ghosn - "Leadership Starts with Transparency". Management Today. Retrieved June 23, 2016 from http://www.managementtoday.co.uk/news/549439/Carlos-Ghosn---Leadership-Starts-Transparency/
Snyder, B. (2014, July 9). Carlos Ghosn: Five Percent of the Challenge Is the Strategy. Ninety-five Percent Is the Execution. Stanford Business. Retrieved June 23, 2016 from https://www.gsb.stanford.edu/insights/carlos-ghosn-five-percent-challenge-strategy-ninety-five-percent-execution
