Carlos Ghosn’s approach to turning Nissan around

In order to give a thorough in-depth evaluation of Carlos Ghosn’s approach to turning Nissan around I have chosen to apply John Kotter’s 8-step model to strategic change implementation (Kotter J. P., 1996) displayed below. Kotter is regarded as an authority within the field of organization and change management and I find his model helps securing a comprehensive evaluation. The model is usually used as a forward-looking plan for how to handle a change process, but I will apply it as a retrospective analytical tool to review how the process was handled at Nissan.

The first three steps are about creating the right climate for change and making sure the organization is ready to make a move ahead. The next three steps are about engaging and enabling the organization to pursue the strategy. Without support from a large part of the organization, change will not be successful, but equally important the organization needs to be equipped to handle such process change. The last two steps are all about implementing and sustaining change. Without focus on these aspects the organization is in risk of regress.

The assignment puts emphasis on organizational and national culture. That is for good reason as I find them central aspects of the challenges Ghosn was facing, when he took over as the first non-Japanese COO of Nissan. Kotter’s 8-step model does not focus on culture, but it is implicitly handled in several of the steps – most noticeable in step two and four. In the conclusion I will sum up the findings in the analysis and explicitly answer the four questions given in the text. 1

•Establish a sense of urgency2

•Form a powerful coalition3

•Create a vision4

•Communicate the vision5

•Empower others6

•Plan for and create short-term wins7

•Consolidate improvements8

•Institutionalize changes

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2. EVALUATION – ANALYSIS

2.1 ESTABLISH A SENSE OF URGENCY

“It is an ill wind that blows no good”, this was also the case for the Yamaichi bankruptcy. The misfortune of the major financial house in Japan helped open the eyes of the employees in Nissan. Now the employees realized that lifetime employment was no longer a reality and that they had to do their own part to secure the company’s future and thus their own jobs.

“Ghosn, to his credit, used the Yamaichi example whenever he could to continue to motivate his employees, repeating that their fate would be no different if they did not put all of their effort into figuring out, and then executing, the best way to turn Nissan around.” (Millikin & Dean, 2003)

The bankruptcy was indeed a blessing in disguise for Ghosn as it created the burning platform that according to Kotter is crucial to “do” change. Change is always accompanied by anxiety for the unfamiliar, but this event made sure the whole organization was aware that status quo is more dangerous for Nissan and each employee than venturing into the unknown.

Kotter believes that around half of the failed change efforts can be traced back to step one. If people do not see why change is necessary, then motivation for change will be nonexistent. Moving a huge organization simply by brute force is an impossible task, but Ghosn’s strike of luck created a powerful momentum that diminished potential resistance to change.

2.2 FORM A POWERFUL COALITION

One man cannot change a huge company such as Nissan. Ghosn realized this as well. Even though he had been talking with plant employees and had gained a lot of knowledge about what should be done, he chose not to impose a revival plan on Nissan. He wanted the employees to come up with ideas themselves and to lay down a plan for what was to happen. His establishment of the nine Cross-Functional Teams (CFTs) and their sub-teams created powerful coalitions that were essential in turning the company around.

These coalitions mainly consisted of middle managers, but they were empowered because they reported directly to two supervisors from the executive committee, had full access to all

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necessary information, and they had the full support from top management. The cross-functional aspect gave the freedom and insight to create radical changes without being weighted down by the need for conscientiousness and corporation, which is a general characteristic for most Japanese companies including Nissan. This powerful coalition is, according to Kotter, fundamental for a successful change as Ghosn needed protagonists to influence the whole organization and these protagonists needed to have enough impact to counteract the inherent resistance to change.

A powerful coalition is especially important in Japanese culture as group harmony is a cornerstone in their work environment. A powerful coalition will have fewer problems, relative to a similar situation in a company in Western culture, converting the minds of opponents as many will act opportunistic and follow the majority – or as Ghosn puts it:

“When you get a clear strategy and communicate your priorities, it’s a pleasure working in Japan. The Japanese are so organized and know how to make the best of things. They respect leadership.” (Millikin & Dean, 2003)

2.3 CREATE A VISION

According to Ghosn, Nissan had been suffering from management lacking vision and he pointed this out as one of five main issues that he wanted to address. First creating the Nissan Revival Plan and then formulating Nissan 180 was an excellent two-step vision, which was guiding, laying a foundation for decision making, and created a bridge from the present to where he wanted to take the company in the future. The vision helped the employees understand why they had to undergo change by showing what was in store in the future. That they had to change their attention from regaining market shares to focus on customer demands.

“Not only was Ghosn aggressively launching the Nissan 180 program to transition out of the Nissan Revival Plan program, but he was also pushing a new, customer-focused initiative called Quality3-3-3.” (Millikin & Dean, 2003)

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Creating a vision that is tangible, concise, and easy to relate to for the employees is key when setting out to change an organization. Detailed plans for what needs to be done are at this point not advisable because they do not create the much needed excitement and enthusiasm, which is so vital. It is important to bear in mind that this step is part of the first three steps, which focus on creating the right climate for change. It is therefore all about talking to people’s feelings and not necessarily to their intellect.

Furthermore Kotter stresses that leaders need to “walk the walk”. Actions often speak louder than words and if leaders want people to follow them, then they must take the lead. Ghosn was aware of this. One issue Ghosn noticed, shortly after arriving at Nissan, was the lack of communication between the layers of the organization, and as the quote below shows Ghosn was prepared to “walks the walk” himself.

“He was the first manager to actually walk around the entire company and meet every employee in person, shaking hands and introducing himself.” (Millikin & Dean, 2003)

2.4 COMMUNICATE THE VISION

It is not enough to create a great vision. It also has to be communicated effectively to the organization. It says in the text that Ghosn communicated both NRP and Nissan 180 aggressively and that two of his three philosophies of management are:

“Transparency – an organization can only be effective if followers believe that what the leaders think, say, and do are all the same thing.”

“Communication of company direction and priorities – this is the only way to get truly unified effort and buy-in.” (Millikin & Dean, 2003)

Information concerning his methods of communication is unfortunately lacking, but there is no doubt, that he understood the importance of communicating the vision, and results show that he succeeded brilliantly. Ghosn and his coalition managed to reach out to all employees and motivate them to move towards the vision. If he had not been able to communicate

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effectively enough the NRP arguably would not have been the rapid success it turned out to be.

“The NRP was achieved in March 2002, one year ahead of schedule.” (Millikin & Dean, 2003)

Kotter stresses the importance of having focus on communication of the vision because it will act as a guideline, and if people do not get that information they do not know which direction to go. Because mental images are easier to remember one of the effective ways to get the message across is using metaphors, analogies, and examples. His metaphor of 180 in the Nissan 180 vision is a paragon of virtue in that way. It clearly creates a picture of turning the company around, and incorporating the metrics in the 180 made it easier for employees to remember what they needed to do.

2.5 EMPOWER OTHERS

The Japanese culture forced Ghosn to pay extra attention on the empowerment of employees. As mentioned, Japanese business culture is characterized by a search for conscientiousness, corporation, group harmony, and an avoidance of mistakes. This all leads to a delay of decision making and a lack of responsibility. The introduction of CFTs was an attempt to break with the inconveniences of Japanese culture without harassing the fundamentals.

“…cultural conflict, if paced and channeled correctly, could provide opportunity for rapid innovation.” (Millikin & Dean, 2003)

People in CFTs got a bird’s eye perspective of the company and it gave them a sense of ownership and responsibility, which was necessary to turn things around. Ghosn even went as far as to put his own fate in the hands of his employees as he had publicly stated his trust in the employee’s abilities.

He encouraged employees to come forth with their ideas and take risks. This was contradictory to their instincts as it was embedded in the organizational culture not to seek risks and to reach consensus before making a decision.

Furthermore, he made organizational changes such as permanent cross-functional departments and matrix organization for higher-level staff, which all emphasized the demand for

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responsibility and accountability. Finally he changed the traditional Japanese compensation system to a more Western approach with possibility for employee advancements based on performance instead of seniority. This greatly empowered the talented employees, which was much needed in this change.

“In many cases, these midlevel managers enjoyed learning about the business …and felt fully engaged in the change process, giving them a sense of responsibility and ownership about turning Nissan around.” (Millikin & Dean, 2003)

2.6 PLAN FOR AND CREATE SHORT-TERM WINS

Ghosn excels when it comes to creating short-term wins. His NRP created tremendous results that boosted motivation throughout the organization.

“One success was a 20% reduction in purchasing costs… …the supplier base shrunk by 40% and the service suppliers decreased by 60%.” (Millikin & Dean, 2003)

It is incredibly important that short-term wins are communicated broadly to the organization, so people can see their hard work come to fruition. Often leaders of change hope that short-term success will arise, but according to Kotter it is necessary to actually plan for them.

A commitment to create short-term goals has a positive side effect as it increases the sense of urgency throughout the first period. Ghosn did it brilliantly by announcing to the public that the company would show a profit within two years. This is something all employees can understand and it creates a commitment that helps in the realization of his promises.

2.7 CONSOLIDATE IMPROVEMENTS

One of Ghosn’s three management principles is to execute. He states that 95% of the job is about execution. It is not enough to have a strategy if it is not carried out. This is completely in line with Kotter’s thinking. The consolidation of improvements is all about securing the short-term wins by rooting them in the company and using that as a foundation for further work. At the same time as he declared that the NRP was achieved he announced the Nissan 180. Nissan 180 represented a plan for growth based on the improvements that NRP yielded.

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Now that they had made the necessary improvements, it was time to consolidate and improve further.

I think many leaders mistakenly would have left out the second step of Ghosn’s two-step vision. But if he had done so, the company presumably would have had difficulties rooting the tremendous results and huge changes that were created in such a short time. His timing of the announcement of Nissan 180 was perfect as it kept the momentum going.

“The Nissan Revival Plan is over. Two years after the start of its implementation, all the official commitments we took have been overachieved one full year ahead of schedule… Nissan is now ready to grow.”

2.8 INSTITUTIONALIZE CHANGES

Another of Kotter areas of focus is that changes are often considered finished too early. The organization needs time to really settle in the new ways and if “victory” is declared too early, then there is a risk of returning to the old ways. Ghosn was aware of that as he was concerned with what will happen when he returned to Renault.

“… Ghosn contemplates the future, he knows that the transformation has really just begun”

The momentum and positive energy that have been created from all the success needs to be followed-up by a new vision and new goals. This can potentially be a difficult task because the great success could diminish the employee’s sense of urgency. Whether or not his successor is able to do so remains unknown, but the fact that Ghosn was aware that there is still a long way to go shows his great insight to problems with turning a company around and institutionalizing changes.

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3. EVALUATION – CONCLUSION

Omitting the fact that Kotter introduced his 8-step model in 1995 one could almost suspect that Ghosn had read about Kotter’s model to strategic change as it looks like he follows them closely. Ghosn’s ability to establish the right climate for change, engaging and enabling the whole organization, and implementing and sustaining the change in such a large organization is admirable.

1) I think the resistance to change that Ghosn faced was inevitable. Turning a company around as drastically as was needed for Nissan is bound to create resistance. Such a big change makes the future uncertain for many employees and the uncertainty is something many naturally try to avoid. Combining that with strong Japanese traditions, an organizational culture that is hindering innovation and adaptability, and a Japanese government that historically always have bailed out troubled employees, and thereby created a pretext for inaction, only made it worse. Trying to move people, who do not find movement necessary, will unavoidably create tension and resistance. That being said, I think Ghosn handed the resistance to change ideally.

2) I am sure that many parts of the Nissan organization did not feel very good about having Ghosn changing things as drastically as he did. The reduction of 21,000 jobs will inevitably create opponents among the lower level employees as well as higher in the hierarchy. Furthermore, the demotion of Vice President of Sales and Marketing in Japan would presumably create antagonists with more leverage. Throughout the text examples of his no-nonsense approach to leadership shows that he is a tough leader that does not accept failure and he demands that people take responsibility for their actions. I think this kind of approach combined with his philosophies of management and his capacity for global leadership was the key to his success in Nissan and the reason why his opponents were not able to challenge him seriously. Another reason is the respect for leadership that is inherent in most Japanese. This made his approach to leadership even more effective. Finally, his involvement of the CFTs made sure that he would not be the only one in the line of fire. The delegation of responsibilities to the CFTs helped getting the support of middle and lower levels, so he could focus his attention on top management.

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3) The national culture has without a doubt played a large part in the outcome of Ghosn’s attempt to turn Nissan around. On the one hand it hindered change because of the sense of security the government created and its rigid approach to decision making and career advancement. On the other hand the respect for leadership made it easier for him and his CFTs to have an impact on the organization. The cultural differences between Ghosn and the Nissan organization was profound because he had never been exposed to Japanese culture before, but his approach to the culture ensured that he was fully aware of the issues that could arise. He stated that he wanted to discover Japan by being in Japan with Japanese people. That shows his humble and respectful approach to their culture, which I think benefitted him.

4) There is no doubt that Ghosn was lucky. His timing was impeccable as the bankruptcy of Yamaichi happened when he took office as COO in Nissan. This fortunate misfortune paved the way for a major organizational and cultural change that otherwise would have been hard to push through. Without this, Ghosn and his CFTs would probably have faced a much more daunting task. Whether or not they would have been able to power through in spite remains unknown, but having learned about Ghosn leadership abilities I think he would have found a way.

All in all I think Carlos Ghosn did an incredible job turning Nissan around in a very short period of time. As a non-Japanese COO he managed to overcome Japanese cultural obstacles, as well as effectively transforming a bureaucratic organizational culture and turning a large continuing deficit into a profit within 18 month. One could question whether his successor will be able to continue what Ghosn started or if he/she needs to find his/her own way. Either way, Ghosn has a justifiable concern for the future of Nissan. They might be on the right path, but they are still far from reaching their goals.

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