Building Emotional Capital for Strategic Renewal - Nissan (1999-2002)

Renault and Nissan were both expecting big things from their March 1999 strategic alliance, the first of its type between a French and a Japanese corporation. Sceptics were plentiful, however. Renault had lost quite some credibility amongst analysts with its botched attempt to merge with Volvo a few years earlier. Bigger and richer players had already passed on partnering with loss-making Nissan. Associate Professor of Strategy Quy N. Huy offers his insight on the efforts of Renault and Carlos Ghosn to make a conjoining of companies with radically different cultures work.

by Quy Huy
Last Updated: 23 Jul 2013

Renault and Nissan were both expecting big things from their March 1999 strategic alliance, the first of its type between a French and a Japanese corporation. The latter's staggering debt would be greatly reduced by Renault's $5.4 billion injection, granting it a 36% equity stake in the severely ailing Asian automaker.

Sceptics were plentiful, however. Renault had lost quite some credibility amongst analysts with its botched attempt to merge with Volvo a few years earlier. Bigger and richer players had already passed on partnering with Nissan, which had posted severe losses in six of the previous seven years. Even its home market was rejecting its new product line, widely derided as unimaginative and technically lagging its competitors. News of the deal sent the French firm's stock falling, even provoking rating agency reviews. What was Renault thinking?

Associate Professor of Strategy Quy N. Huy offers his insight on the efforts of Renault to make a conjoining of companies with radically different cultures work. Carlos Ghosn, the chief architect of Renault's ongoing cost-cutting programmes in Europe, was charged with making it work.

Ghosn was determined to avoid the types of cross-cultural disconnects that weighed (and continue to weigh), heavily on Daimler-Chrysler. He was adamant that Japanese workers and executives neither needed nor would appreciate lessons on how their ways of thinking and acting had to change. Rather, Ghosn favoured what was termed a "distinct partners" philosophy, largely rejecting any notions of there needing to be a "common culture" between the two entities.

Huy relates Ghosn's hands-on approach to meeting Nissan employees at every operational level after arriving in Japan. One of the first and most critical lessons he learned was how severely the collective sense of pride had been undermined by years of poor performance, and how profoundly such loss of face could affect every level of a Japanese operation of Nissan's once-imposing stature.

Happily, Ghosn arrived at an organisation eager to embrace change in almost every area. The case details his quick grasp of the critical areas where cross-cultural misunderstandings could be most disruptive. All top-level meetings were to be conducted in English, for example, partially as a type of cultural leveller. But different words and phrases were often understood very differently by French and Japanese executives. How could this best be resolved?

The author expands and extends the work done by INSEAD Professor of Accounting and Control Jean-François Manzoni and co-authors (INSEAD Case 02/2003-5095). After taking pains to convince every level of operations that the Nissan Revival Plan (NRP) was the only viable solution for Nissan's woes, Huy's analysis concentrates on the challenge Ghosn faced in executing the Plan after succeeding in gaining its widespread acceptance. The author describes the executive's conviction that the NRP's viability would demand Nissan managers to "use 5% of their time on planning, and 95% on implementation". In a nation where seeking consensus and avoiding direct confrontation were seen as the bedrock of both good business and a civilised society, such a concept was little short of revolutionary.

Indeed, the markets showed very little initial faith in Ghosn's grand scheme. But by the end of 2001, Nissan announced its best half-year results for over a decade. Ghosn was seen as having succeeded in getting previously very risk-adverse managers to consider a host of new ideas, especially from suppliers. Ghosn's senior team then concentrated on radically overhauling the designing system for new Nissan models, with Japanese and American technicians working closely.

In May 2001, Ghosn proudly declared that "Nissan is back" while announcing impressive full-year results. At the mid-point of its three-year period, the NRP had met or exceeded all of its targets. Plan 180, a second-phase growth strategy grand scheme, was now ready for launch. But with the original crisis now over, could the same level of energy and focus possibly be maintained?

INSEAD 2004

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