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Nissan Case Study
The auto industry has seen many turbulent periods prior to 2008. The very nature of the auto industry is that of various cycles of optimism and pessimism on the part of the consumer. As economies move through their natural cycles of boom and bust, so too do the autos that are prominent within that particular region. Tata motors goes through the came cycles in India as Nissan does in Japan. Such is the nature of a capitalistic society in which many of these businesses operate in. However, one key difference was the extent of the losses incurred by Japanese auto makers. What ensued was a massive restructuring in regards to cost structure, organizational structure, and product focus. As a result of this restructuring, it can be argued that Nissan is poised for extreme growth for the future.
The automotive industry is characterized with low margins and high fixed asset ratios. Plants, property, equipment and inventory are relatively fixed in the long run which creates problems in regards to profits margins. Nissan, as the case indicates, had the unique problem of culture which also plagued the growth of the company. The Ghosn model helped alleviate many of these concerns. Workers, in particular, those in Japan, worked with the expectation of having a position until retirement. Through the Ghosn model many of these preconceived notions were eliminated or adjusted which created a better overall company. Relationships and explanations changed through the both upper and middle level management. Carlos Ghosn, through his leadership made management expectations clear and concise. He did not use confusing rhetoric or convoluted plans. Instead he drove results through simplicity and listening to employees. Unlike his predecessors, Ghosn organized cross functional teams to help establish a unified framework within the business operations of the firm. These teams were assigned specific tasks to help drive a more efficient operation. The use of CFT's had a very profound effect on the relationships of management over time. First, management had a better understanding of the overall business and how their particular area of responsibility fit within the overall framework. In addition, management was better able to communicate with their peers regarding ideas to help improve profitability. This communication, prior to Ghosn's arrival, was non-existent.
Furthermore, the employee relationships were altered through top level management being more engaged in the routine operations of the business. Management visited plants, spoke with employees, created cross functional teams, and listened to employee complaints on all levels of the organization. The ideas garnered from these conversations formed the foundation by which Nissan could return to profitability. In addition, the relationships between the employees and management became stronger. Prior to Ghosn's arrival, management was rarely seen interacting with lower level associates. The culture was that of isolationism. Management provided the orders by which associates were meant to follow. However, this instance provided a means for management and employees to collaborate rather than being juxtaposed against one another. This action fosters both commitment and motivation on the part of all individuals involved.
This is in stark contrast to many of Nissan's American rivals who will cut employment during periods of economic pessimism. The combination of high fixed assets, low profit margins, and culture were the most important aspects of the case (Production Statistics, 2011). They were important primarily due to the fact that they all are interrelated. As such, when all of these forces negatively impact a business, the ensuing profits and revenues will suffer. Likewise, when these forces are impacted positively, the business can grow and prosper. Due in parts to their overall correlation with the success of Nissan, these issues therefore warrant the most attention of management. This, by definition, makes these issues the most important. Furthermore, the most important metric for Nissan, as indicated by the case, was profit. Through the use of the Ghosn model, top level executives wanted to return the company to profitability within one year. In order to accomplish such a lofty task in such a short time frame, the issues mentioned above must first be corrected. Due to the heavy time constraints imposed by management, the issues of fixed assets, margins and culture could all be fixed relatively quickly through the use of the Ghosn model. As mentioned above, these elements are related as they all directly correlate to profit margins.
The main objective of the Ghosn model was to return the company to profitability within a year. Fixed assets and labor costs are methods in which to do so effectively. However, management couldn't impact these components without changing the culture within the business. By changing the culture of the business, margins increased allowing for flexibility in both pricing and the incentives by which the company can entice consumers to purchase. All three components are related and all three help drive profitability. In regards to fixed assets and labor, management had to realign goals and objectives. By having a global presence within the auto industry Nissan can obtain a competitive advantage in regards to its strategic choices. First, the auto industry is an oligopoly globally as very few competitors compete on a global scale. Many smaller companies are located in specific countries but Nissan can achieve economies of scale through its global operations. In addition, though the use of the Ghosn model, the threat of new entrants with the financial power of Nissan is minimal. As such, the company can initiate strategic choices that can encompass purchasing smaller companies that may pose a future threat. Finally, as a global company with viable financial backing, Nissan has the brand recognition that many of its competitors do not have. As such, it has the ability to attract more customers and charge premium prices for its brand and what the values it represents
Through the use of the Ghosn model, groups were established within the company to cut the overall labor force of Nissan in an effort to streamline operations. Nissan used interchangeable parts that are used are many different models. The company also adopted just in time delivery methods to help reduce unneeded inventory. All of which reduced costs instead of incurring additional costs by producing entirely new models the public may not demand. The remaining employees, through the increase transparency of management, were made aware of company goals and objectives. Furthermore, through the Ghosn model, the expectation of employment for life was changed throughout the organization. Employees understand that performance and results mattered in regards to their jobs and respective livelihoods. The increase in efficiency combined with the lower labor costs provided more money to invest in product development and design. Nissan, through the use of innovation, created cars that appealed to the mass market while also having higher margins. Through these initiatives the company regained its competitive advantage relative to its peers, and returned to profitability. These concepts are related because they all correlate to profit. The ultimate objective for top management was a return to profitability within a year. This return to profit would not manifest itself without the above mentioned concepts. They are therefore related because the can immediately impact both sales revenue and profit. Simply eliminating unproductive or inactive plants for example, could save the company large rental fees, electricity, inventory expense, theft, insurance premiums, and workers compensation due to accidents. These fees, when combined could cost the company many millions of dollars. Therefore, an assessment of fixed assets relative to company expectations is warranted. An immediate closure could result in millions that can be allocated to more profitable endeavors. Culture, as mentioned above is also related to profit. The Japanese, as the case mentioned are more collectivistic by nature. Therefore, they expect to maintain their positions irrespective of performance or economic conditions. This culture can be extremely costly to a company, particularly when the company is struggling financially. The concepts of culture and fixed costs are therefore interrelated as they both directly correlate with one another. For example, by closing the inactive or unproductive plant, a corresponding amount of workers may be temporarily laid off. Once demand picks up, these workers will subsequently be hired back as the inactive plant is now running at or near full capacity. Under the previous management, both the inactive plant and the personnel employed in the plant would continue to work even if demand was lackluster. This was the culture that prevailed at the time which contributed to the low margins and subsequent low profitability. Both are related and both can either be a hindrance or an asset to a company.
The most important issues in regards to the Ghosn model are those of expectations, and appropriate communication. These two issues provide the foundation for improvement in regards to company operation. Clear expectations set through the Ghosn model must be set on the part of management. These expectations are garnered through the use of communication. Communication on all levels of the company provides insights and information that can be used to set the appropriate expectations for the company.…[continue]
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