Carlos Ghosn's Turnaround Leadership at Nissan (1999)

Overview of Nissan's Crisis and the Renault Merger

Despite manufacturing well-performing vehicles, Nissan faced bankruptcy in 1999 following eight successive years of declining sales and profits. This situation was the cumulative result of several suboptimal practices, including paying higher prices for purchases than the industry average, maintaining unused production capacity, producing poor vehicle designs, and operating a weak distribution network. Moreover, Nissan's executive leadership team had failed to address these issues, allowing them to become genuine threats to the company's viability.

In response to Nissan's predicament, Renault's management team agreed to step in and help Nissan resolve its numerous problems. The French automaker had purchased a controlling 36.8 percent interest in Nissan in March 1999 (Gold & Hirano, 2001, p. 95), and as part of that arrangement, Carlos Ghosn was assigned as Nissan's chief operating officer. By 2005, Renault's controlling ownership interest had increased to 44.4% (Pesek, 2003).

The overarching sources of resistance to change at Nissan were the Japanese cultural forces that influenced the company's human resource practices, the manner in which it sourced its purchasing needs, and the structure of its distribution network — all of which are discussed further below.

Cultural Challenges and Resistance to Change

With a Brazilian-Lebanese-French heritage, Ghosn was clearly outside his cultural element when he assumed the chief operating officer position at Nissan in 1999. As Gold and Hirano (2001) observed:

"The former Michelin and Renault executive, best known for his cost-cutting skills, is trying to do more than restructure a respected but money-losing industrial giant. He is doing so in Japan, where social convention limits his flexibility in making big, fast cost reductions. Moreover, he is a foreigner, one of the few to lead a Japanese company." (p. 95)

Not surprisingly, Ghosn's assignment to Nissan was initially met with skepticism and derision by many stakeholders — most especially Nissan employees, who viewed the new corporate leader as an outsider who could not comprehend the subtleties of Japanese society. By 2003, however, those attitudes had changed due to the consistency of Ghosn's leadership and his success in turning Nissan around. As Pesek (2003) noted, "In 1999, the Brazil-born Frenchman of Lebanese descent was derided as an evil foreigner destined to destroy Japan's No. 3 automaker. Now, Ghosn is a bona fide celebrity. He's even a comic-book hero" (p. 4). It is to his credit that Ghosn recognized the fundamental cross-cultural issues involved in effecting meaningful change at Nissan.

Nissan's human resource practices — which guaranteed lifetime employment and determined pay and promotion based on seniority rather than performance — as well as the company's entrenched dealer network, headed primarily by Nissan executives nearing retirement, prevented the company from capitalizing on the few vehicles that remained profitable. These structural and cultural factors represented the core motivational and organizational behaviors underlying Nissan's poor performance.

Steps Taken to Restore Profitability

Because he recognized that Japanese employees at Nissan would resist changes that were unilaterally dictated by him and the expert team he brought from Renault, Ghosn met with various stakeholders prior to formally assuming his position as chief operating officer. He then formed cross-functional teams — nine in total, something which had never been done at Nissan before and was otherwise a rarity in Japan — tasked with identifying opportunities to reduce costs and improve efficiency, vehicle design, and distribution.

Beyond forming those teams, Ghosn spent three full months meeting with stakeholders, including employees, union officials, supply chain partners, and consumers, to gain a better understanding of the problems facing Nissan and how best to address them. These efforts to garner widespread support succeeded in giving Ghosn the legitimacy and authority he needed to implement substantive changes.

By ensuring that all stakeholders were kept informed of the rationale behind his decisions, Ghosn helped ensure that even the most difficult steps — including downsizing the workforce — would be more readily accepted. He also eliminated waste from the supply chain, pursued more innovative vehicle designs, and reformed human resource practices to include merit-based pay rather than automatic promotion for tenure alone. As Pesek (2003) emphasized, "Ghosn succeeded by doing what others were afraid to do. He cut 23,000 jobs in a country where lifetime employment is the norm, closed factories and ended decades-old contracts to save US$6.7 billion ($10.6 billion) in purchasing costs" (p. 4). The adverse effects of downsizing on Nissan workers were minimized through early retirement offers, part-time positions at other company facilities, and natural attrition.

Conclusion

As a result of analyzing this case, it is apparent that even the most difficult problems can be resolved when organizational leaders take the time to gain a clear understanding of the situation from the perspective of those who have the experience to provide it. The systematic and thoughtful approach Carlos Ghosn used in addressing the broad-based problems threatening Nissan's future demonstrates that fixing major organizational problems requires time — but that communicating the rationale behind needed changes and instilling a sense of urgency about them significantly facilitates the process.

The fact that Ghosn restored profitability in just one year is proof that cross-cultural differences can be overcome through enlightened organizational management practices aligned with a leader's vision for the company's future. His success at Nissan stands as a durable case study in how transformational leadership, cultural sensitivity, and structured stakeholder engagement can combine to reverse even the most entrenched organizational decline.

References

Gold, A. R. & Hirano, M. (2001, Winter). An outsider takes on Japan. The McKinsey Quarterly, 93.

Lalanne, B. (2003, Spring). Samurai man: EBF talks to Carlos Ghosn, Nissan President and CEO. European Business Forum, 13, 84–86.

Pesek, W. (2003, May). Will Ghosn leave Nissan with a local? Business Asia, 11(4), 4.

Spitzer, D. R. (2007). Transforming performance measurement: Rethinking the way we measure and drive organizational success. New York: AMACOM.

Wolfram, H. J. & Mohr, G. (2009, February). Transformational leadership, team goal fulfillment, and follower work satisfaction: The moderating effects of deep-level similarity in leadership dyads. Journal of Leadership & Organizational Studies, 15(3), 260–266.