Redesigning Nissan - How Fair Process Eased Painful Change

Radical change is never easy. In Japan, it was regarded as a near impossibility. Yet Carlos Ghosn and his team showed it could be done, and done well. This is what we learn from Nissan’s extraordinary turnaround between 1999 and 2001. In this short period, Ghosn shakes up nearly every aspect of the venerable, yet ailing, automaker. In his first 100 days alone as chief operating officer he announces job cuts, factory closings, strict new standards for suppliers, and attacks the lack of communication across functions, borders, and hierarchical lines. Despite an audience that is reluctant at best, antagonistic at worst, Ghosn’s attention to fair process helps ease the bitter medicine he proposes, explain Professor Jean-François Manzoni, Jean-Louis Barsoux and Kathryn Hughes, in this case series.

by Jean-François Manzoni, Jean-Louis Barsoux
Last Updated: 23 Jul 2013

In March 1999, when Renault and Nissan announced their alliance, company press releases touted how well the two companies complemented each other. Yet news of the deal was greeted by a wave of industry scepticism. Nissan was in a desperate financial state, having posted global losses in six of the previous seven years, and Renault’s botched merger with Volvo in the early 1990s made it an unlikely rescuer. The unenviable challenge of making this new alliance work fell to Carlos Ghosn, then number two at Renault.

Thus begins a classic leadership story told by Jean-François Manzoni, Associate Professor of Management, Kathryn Hughes, Research Associate, and Jean-Louis Barsoux, Senior Research Fellow, all at INSEAD. In Part A of the case series, the authors chronicle Ghosn’s preparation and first 100 days in the job—a period in which he works non-stop to understand the problems facing the company. From that understanding, he develops a process that he believes will lead Nissan out of its current decline, while at the same time attacking the lack of communication across functions, borders, and hierarchical lines. To Ghosn, Nissan’s ailing condition suggests that nothing less than swift and radical surgery is needed, yet this cure runs counter to deeply held Japanese business practices, such as lifetime employment and close ties with suppliers. How will Ghosn’s change efforts—dubbed the Nissan Revival Plan (NRP) — be received given this huge cultural divide? How does a leader build the case for wrenching change? And what, if anything, makes such change more acceptable?

In Part B of the case series, we see how Ghosn sets about enacting the changes outlined in the NRP. We see him pushing change on multiple fronts – ranging from changes in structure and HR systems, to changes in design and advertising.

The authors outline how he ‘sells’ his ideas, carefully balancing the pain with the gain. For example, when giving a speech to employees, he talks about cost cutting, but in the next sentence tells them that the money will be invested in new products. When announcing the factory closures, he tells employees that those remaining open will become industry leaders and that R&D will carry on recruiting. He warns suppliers that Nissan expects hefty price reductions, but also guarantees more business for those who deliver. Ghosn promises investment, growth, new products, better designs – and pledges to resign if he fails to deliver on his financial commitments. The authors argue that people are much more likely to accept the pain of restructuring if it is clear how this pain is connected to future gains. People must have some hope that the sacrifices they are making will bear fruits for them in some foreseeable future.

The authors also stress the role of relentless communication, both inside and out, and we see how Ghosn goes about signalling the new expectations and embedding the new practices and behaviours. There is a memorable exchange in the case when a journalist asks him how much time he actually spends on “communication”. For once, he finds it difficult to answer. On reflection, he cannot think of a single moment when he is not communicating: “Even in brainstorming sessions, even when we elaborate strategy, you communicate all the time.”

The case series, which can be used in courses on leadership and change management, serves as a backdrop to discuss four main issues related to successful corporate change: its multidimensional nature; the importance of the change process; the need to balance pain with gain; and the role of procedural justice in radical change efforts.

A condensed version of the two cases – entitled Nissan’s U-Turn: 1999-2001 – is also available. This covers the same material, but goes into less detail on the industry context and Ghosn’s first 100 days in office. It is intended for instructors who want to discuss the whole story in one session.

INSEAD 2003

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