Renault-Nissan Alliance Has Successfully Resuscitated

Renault-Nissan alliance has successfully resuscitated the Japanese automaker and proven the alliance's skeptics wrong. Now, in 2004, the two companies must analyze how they are to proceed. Since Carlos Ghosn is soon to become the CEO of both companies, he must decide on the future strategy for the two companies, to maintain the alliance's positive momentum. At present, there are few existing problems. Both companies are performing well and the alliance has proven to be a success. In future, however, there are some problems looming. One is that the sense of urgency which has driven these companies to their current level of success may wane now that they are both on stable footing. The second problem is whether or not to integrate the two companies further or to maintain the current level of integration. The third problem is more fundamental -- to build more market share and profits for Renault and Nissan.

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The success of the past five years provides insight into the ways in which the future problems can be addressed. While the two companies have had a strong alliance over the past five years, the intensity of that alliance was held at a constant level. Managers worked in cross-functional teams and the two companies worked to find areas of synergy that they could leverage to improve their market share and profit position. This provides a road map for building future market share and profit growth.

What is unknown, however, is how the managers at these two companies will react now that the sense of urgency is reduced. The two companies came together at a time when both were in crisis. They needed each other. They likely still do, but with both companies being profitable, managers may not be driven to give the same high level of dedication to the organizational change process. The transformation of Renault-Nissan is complete, what we do not know is if the same people who drove that change are going to be able to lead this company through a period of slower growth and less dramatic cultural and operational shifts.

Alternatives

There are a number of ways in which these problems can be addressed. Ghosn could choose to further integrate the two companies. His previous efforts had focused on bringing changes to Nissan; now he can incorporate Renault into the change process as well. This alternative may reap the same benefits at Renault that it did at Nissan, but it may also take away from the strong focus that Nissan has on improving its business, allowing that companies to slide into complacency. Ghosn could also choose to maintain the status quo, since it has worked well. However, this again leaves the risk of complacency. Ghosn could also scale back the ties between the two companies, at risk of the negative aspects of Nissan's culture returning, but allowing for Renault to focus more on internal improvements.

There are many ways in which Ghosn can address complacency. The first is by creating an entirely new set of strategic objectives for the two firms. They are only the number automaker worldwide, so there remains room for improvement. New objectives may maintain management enthusiasm, but they may also subject the managers, who have been working hard for five years, to burnout. Lastly, complacency can be addressed by pushing forward with further integration between the two companies. Without a shared culture, however, a higher degree of integration may be difficult. Yet, it is the natural next step and is facilitated by Ghosn's promotion.

Recommendation and Implementation

I would recommend that Ghosn maintain the same level of integration between the two companies, but initiate a new set of strategic objectives. The current model of managerial collaboration has been successful thus far, so the structure should be maintained. The strategic focus, then, should be on continued market share and profit improvements. The two companies have demonstrated that the existing structure is powerful enough to transform an established company like Nissan. With strong objectives set that build upon the work that has already been done, the companies can continue along their existing path.

The structure of the company, with the cross-functional teams, is already in place to carry out the recommendations. The most challenging part of the recommendation is the building of motivation among managers who have spent the past five years working hard to restore Nissan to profitability. This element of the strategy will require a further cultural shift, from one that emphasizes cooperation in the name of recovering the business to one that emphasizes pushing the company into a position of global dominance. The first step will be the ascension of Ghosn to Renault CEO. This will serve as the flashpoint for the cultural shift. Ghosn needs to emphasize now the ways in which Nissan can help Renault, in addition to Renault helping Nissan. In addition, Ghosn needs to set new strategic goals, such as becoming the #4 automaker, building share in key markets, or expanding market Nissan into Renault territories and vice versa. The emphasis needs to be replaced not just on revised goals but on continued improved synergies.

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