In 1999, the Nissan was suffering under a decade of decline and unprofitability, in fact the company was on the verge of bankruptcy, with continuous loses for the past eight years resulting in debts of approx. $22 billion. Elements impacting Nissan's performance prior to the global alliance with Renault Internal factors: Emphasis on short-term market share growth instead of a long term success strategy; Advanced engineering and technology, plant productivity, quality management. However, less attention was given to design and innovation, on the assumption that consumers were looking for quality and safety.
This implies a lack of knowledge of the market, consumer's changing tastes, and showed that Nissan management did not pay too much attention to what competition was doing. External factors: The devaluation of yen from 100 to 90 yen for a US dollar; Moody's and Standard & Poors's rating agencies announced in 1999 that Nissan would be lowered from investment grade to junk unless it could not get any financial support. Both formal and informal internal procedural Nissan norms, as well as Japanese cultural norms were holding the company back. Through keiretsu investments Nissan management believed would foster loyalty and cooperation between members of the value chain, hence they invested in real estate and suppliers' companies. 4 billion US dollars were invested in stock shares of other companies as part of keiretsu philosophy. Nissan Company strategic alliance with French auto car manufacturer Renault was mutually beneficial for both companies, each of them expanding portfolio and becoming more competitive in the context of globalized mature automobile market.
With Renault assuming a stake of 36.8% at Nissan, the latter would retain its investment grade status. The alliance enabled Renault to penetrate and expand in international markets that it was looking for - Asia and North America. In turn, Nissan would gain market share in South America. The Japanese car manufacturer agreed to the Global Alliance Agreement in March 1991, provided it would keep the company's name, the Nissan Board of Directors would select the CEO, and it would also be responsible for implementing the company's revival plan. The Renault alliance with Nissan injected the needed cash and revolutionized the stagnated culture at the Japanese company.
When French auto manufacturer Renault acquired Nissan, president Hana wa of Nissan requested Carlos Ghosn to engineer the failing company's turnaround. The Brazilian-born, French-educated son of Lebanese parents, Ghosn first learned the management principles and practices while rising through the ranks at Michelin and Renault. His globalized background designated him as an appropriate choice to lead the turnaround of the Japanese company Upon his arrival at Nissan, Ghosn began his new position by embarking on a three-month intensive examination of every aspect of the business Although Nissan had technologically superior products, Ghosn found there was a distinct absence of vision and leadership. Ghosn organized cross-functional teams to develop a new corporate culture using the best elements of the Japanese national culture. By October 1999 Ghosn was ready to announce his strategy to turn the company around with the Nissan Revival Plan (NRP). The NRP become a highly successful cultural intersection that created the most dramatic turnaround in automotive history.
It was designed to address the company's severe short-term problems and stop the years of declining performances. In the plan, through the Cross-Functional teams organized, Ghosn consistently challenged the tradition-bound thinking and practices of Japanese business that inhibited Nissan's effectiveness. Ghosn closed plants, laid off workers, broke up long-standing supply networks, and sold off marginal assets to focus on the company's core business. Nissan was now breaking the cultural norms of keiretsu investments. Cutting down costs was just the first step in Nissan's recovery.
Actually changes were introduced in every corner of the company, from manufacturing and engineering to marketing and sales: update of Nissan's car and truck lineup; introducing new, dynamic designs; quality improvement. These strategies quickly polished Nissan's image in the marketplace, and re-established the company in the minds of consumers as a leader in innovation and engineering. Eighteen months later, Nissan was back in the black, and within several more years it had become the most profitable large automobile company in the world. Ghosn transformed Nissan once again into a powerful global automotive manufacturer. NRP returned the company to profitability, achieving 7.9% operating margin and cut the net automotive debt to the lowest level in the past 24 years. Next plan, Nissan 180 propelled the Company into a new dimension of profitable growth.
In the second year of the Nissan 180 plan the Company was the most profitable among all the global automakers with an 11.1% operating profit margin and more than 21% ROI C. A future customer-focused plan, Quality 3-3-3 is to be implemented as of 2005, with emphasis on three categories of quality: product attractiveness, product initial quality and reliability, and sales & service quality. The key success factors of the Nissan turnaround were: 1. Vision. The meaningful progress achieved was due to the vision that Ghosn successfully shared at all levels of the company that was clear and adopted. 2. Strategy.
Management's responsibility was to define the business strategy, and make sure it is deployed at every level of the company; everybody knew what was the contribution that was expected from him or from her for the company. 3. The people committed to the turnaround from the top: personal commitment, team commitment coming from the top down. For sure the changes were not easy to implement, but the clear vision brought that people were motivated to bring to life, and the results that showed off rapidly, gave Ghosn credibility, making people feel safe about the company. The vision, strategy, commitment and results guaranteed the success of Nissan's turnaround.