Analysis of the four rs of high stakes decision making in the case study nissan motors, ltd course strategic management

JANUARY, 2019 Analysis of the four Rs of high-stakes decision making in the case study: Nissan Motors, Ltd.. 2 Case study: the revival plan of Nissan Motors, Ltd.. One of the most bril

JANUARY, 2019

Analysis of the four Rs of high-stakes decision making in the case study: Nissan Motors, Ltd.

Swiss UMEF University Master of Business Administration

Nguyen Thi Kieu Khanh (Kiki) Professor: M Akerib Course: Strategic Management

Table des matières

Introduction 2

Theory of the four R decision making 2

Case study: the revival plan of Nissan Motors, Ltd 3

Company introduction 3

Problems of the company 4

Analysis of final decisions with the four Rs 6

Conclusion 10

References 11

Introduction

A journey of decision making has occurred significantly from prehistory to this 21st century Human decisions were firstly chosen from the interpretation of smoke, dreams, guts, etc in ancient days Then, they are interpreted by numerous modern techniques such as derivatives, scenario planning, business forecasting, and “business intelligence” Also, the study of decision making is a collection of intellectual disciplines: mathematics, sociology, psychology, economics, and political science Consequently, the importance of decision-making process has spread over through individual to corporate decisions, with a purpose of better achievements and outcomes

In 1938, Chester Barnard separated personal from organizational decision making He emphasized managerial decision is a result of thought, deliberation, and evaluation, whereas the opposite for true is a result of subconscious automotive and responsive factors Therefore, decisions made by organization are more reasonable and logical than personal decisions In addition, Barnard stated that a decision maker should differentiate relevant facts affecting the fulfilment of managerial purpose from those which are irrelevant This possesses a search of situational analysis to identify strategic factors, which should be controlled to consider decision making

Since then, hundreds of decision makers have created their own systems to analyze organizational situations However, a good decision is not surely equal to a great result One

of the most brilliant decision-making case studies that I would like to mention in this assignment is Nissan Motors, Ltd., which combined several corporate strategic management, national culture, and corporate culture issues from 1999 And after three years, the company significantly came back to global automobile industry with important decision makings Furthermore, to analyse this case study, I would prefer applying the “4R Test” analysis including regret, repeal, repercussions, and resilience, by Eric J McNulty McNulty, the director of research at the National Preparedness Leadership Initiative, building up this strategy through his research and experiences in leadership and decision making

Theory of the four R decision making

Decisiveness is one of the most desirable traits must be possessed in leaders within organizations This can be defined as the power of leaders to decide their resolutions in persuasiveness and firmness Besides, the effectiveness of decision depends on when and how

it is made, not just what was made For example, if a leader decides too soon, the resources

could be led to a wrong direction, or waiting too long and the results may be doomed Also, when a decision is made with delays, it could have numerous costs like a decline in share price, reputation and brand image, and loss of life

Eric J McNulty noted that a leader should collect around 75-80 percent of useful information

in typical decision-making process, while this number would decrease to 50-60 percent in a crisis Thus, when the leader has gathered enough information as possible, he/she can use the

4 Rs test to clarify the impact of his/her decision as followings:

• Regret: What will the result be if you fail to act or make the wrong decision? What might you regret?

• Repeal: How difficult would it be to change your mind and reverse the decision? Do you need to do this?

• Repercussions: Who and what else will be influenced by your decision? If anybody would be undesirably impacted, how could you minimize the impact?

• Resilience: How is your decision to build resilience within yourself and other stakeholders? Choose the option that will the most resilience if possible

Case study: the revival plan of Nissan Motors, Ltd

Company introduction

In 1933, a company called Jidosha-Seizo Kabushiki-Kaisha, as “Automobile Manufacturing Co., Ltd.’’ in English, was established in Japan It combined several automotive ventures and the Datsun brand acquiring from Tobata Casting Co., Ltd Then the next year, its name was changed to Nissan Motor Co., Ltd After the Second World War, Nissan developed gradually, expanding its operations worldwide Its famous and successful products were small pickup trucks and a sports coupe, the Datsun 280Z, in North America Thus, by 1991, Nissan was productively and profitably competing on reliability, quality, and fuel efficiency, producing four out of top ten cars in the world However, some negative hidden impacts had slightly appeared inside the company

Problems of the company

Corporate strategic management issues

First, Nissan management focused on short-term market share growth throughout the 1990s, instead of profitability, long-term strategic goals

Second, due to the accomplishment of its advanced engineering and technology, plant productivity, and quality management, Nissan continued to maintain the victory of proven designs They assumed most customers would like to buy good quality cars than stylish, innovative ones Consequently, Nissan’s designs did not reflect customer opinions

Third, Japanese business custom of keiretsu investing was unproductive when there was a

devaluation of the yen from 100 to 90 yen equals to 1 US dollar in Asian financial crisis By

1999, although Nissan had maintained around $4 billion in the stock shares of hundreds of different companies, these investments were not reflected in Nissan’s purchasing costs

As a result, Nissan received a warning from both Moody’s and Standard & Poor’s in February

1999 If Nissan could not get any financial support from another automobile company, Nissan’s credit rating would be lower from “investment grade” into “junk” status

National culture issues

The delays of decision-making process from group harmony

Conscientiousness and cooperation were the key factors to nurture operational efficiency and group harmony It stemmed from Japanese business culture since the war, which the leaders learnt to bring compromise and cooperative decisions within a department It seems to please every colleague, not striving for great plans and decisions Thus, this method led to delays to decision-making process in an effort to achieve compromise

The overpower of rules and conformity

Moreover, Japanese professionals tended to arranged several informal informational sessions between professional departments before formal decision-making meetings Then, participants, through informal contacts, would vote and choose which positions are the most influential being equal to the strongest support After that, being in an official meeting, participants will align these positions one by one to their superiors If the decision maker agrees to reach a consensus, then no individual could be responsible for a faulty position when decision results

in failure These implicit and blaming interactions could bring irresponsibility among professional departments in Nissan

The dependence of age, seniority, education level and low accountability

Age, seniority, education level to a Japanese company is a key element to decide how an employee maintain and be promoted to his career path This mindset was originated from a cultural tenet named Nennkou-Jyretu with the idea of seniority and education determined promotions, typically In practice, this principle led to performance errors and disharmony among team members Especially, when something is mistaken, the most senior person would accept responsibility while accountability at lower levels is confused

Lacking a sense of crisis

In addition, Japanese cultural norm, during the postwar period of the company’s growth, enhanced the control over operations and quality and productivity Although the situation has changed by the mid-1990s, Nissan had still taken that norm as its priority Thus, these norms had slowed down the risk-taking and decision making at all levels Specifically, existing teams

of employees were afraid of taking new actions which could lead to potential failures In another way, this part of Japanese culture supported satisfaction with market position and internal system at Nissan, weakening the competitiveness of the company

Furthermore, when most of employees realized that Nissan has not performed well in public, they accused other positions or departments so as to protect their career advancement rather than accepting responsibility Also, even there was a problem inside the company, employees always believed their departments were working effectively This consensus creates the issues among other departments and employees Along with that, almost employees at Nissan did not sense an urgency of the possible bankruptcy at Nissan because of Japanese business tradition This custom showed the relationship between the government of Japan and major businesses

to ensure employment whereas the businesses committed to provide lifetime occupation for their workers

Corporate culture issues

First, when the decisions were made at Nissan, the follow-up sessions during implementation were ineffective

Second, a limited and short-term vision was created by top management They focused on re-increasing market share, what was best for maintaining the size of the company and its employees, rather than what was best for customers or for investors

Third, there were communicative issues between all levels of the organization Employees seemed uninformed of major corporate business decisions, whereas top management was out

of touch with the issues at middle and lower management layers

To sum up this part, Nissan met the following problems: an unclear profit orientation, an inadequate focus on customers and over-focus on competitors, lacking a sense of urgency, no shared vision or common long-term plan, and lacking functional, border, cross-cultural lines of work, as Ghosn identified

Analysis of final decisions with the four Rs

According to Eric J McNulty’s test, there are four major considerations to make when making decisions: Regret, Repeal, Repercussions, and Resilience, applying to Nissan case study

Regret: What Nissan might regret if it did not act to have an alliance opportunity with Renault?

From the Nissan point of view, there were three important and urgent challenges that if they did not act immediately, they would go bankrupt afterwards: high debt (2.4 trillion yen equal

to 22 billion dollars); inability to show a profit of the company; and the continuous decrease in global market share since 1990 Thus, Nissan accepted it could not manage these issues alone and had to looked for a strategic partner to foster a turn-around as their short-term concerns Also, although Nissan was the second largest market share in Japan and a strong one in North America, it desired to expand globally to other regions such as Latin America

From the Renault point of view, the issues were more long term As the market shares and profits were strong during 1997 to 1998 There was only one concern for the future Renault ideally looked for potential synergy with a partnership to strengthen globalization and alliance both in the short and the midterm In 1997, Renault had a high market share in Europe (French market, especially) and in Latin America, Brazil to be specific Therefore, it needed a partner that would lessen its independence on the European market and increase its global position in North American and Asian markets

In March 1999, Nissan President and CEO Yoshikazu Hanawa found a perfect alliance opportunity with Renault, with a 36.8% stake in Nissan and investing Nissan $5.4 billion and maintain its investment grade status

What if Nissan did not take this potential chance to be a partnership with Renault, Nissan would surely be in junk status, losing billion dollars of debt, inability to pay salary to their employees

and then being bankruptcy In addition, even though the government of Japan has a solid contract with major businesses such as Nissan, the government could not guarantee Nissan’s employees would be saved with another jobs Take Yamaichi, the major financial house in Japan, as recent example during that time, it went bankrupt and was not bailed out by Japanese government As a result, Nissan could leave its past reputation and current success to nothingness

Compared to Nissan, Renault would be suffered less losses It could not seize its market portfolios in Asian and North American markets and less competitive to other competitors on

a global scale Furthermore, Renault, in a long run, would probably be beaten strongly by other potential global partnerships, the merger of Daimler and Chrysler, for instance

Repeal: How difficult Nissan would be to change and reverse its decision? Might Nissan need

to do this?

Along with the decision making at Nissan, Hanawa negotiated with Renault to agree three key principles when they became a Global Alliance Agreement on March, 1999: Nissan would keep its company name, the Nissan Board of Directors would still keep selecting Nissan CEO, and Nissan would take its responsibility to implement a revival plan Also, he requested to send Carlos Ghosn from Renault to Nissan to be responsible of all internal administration and operations activities

Only one key mission that CEO of Nissan desired is to raise the company up by a turn-around first He probably researched and found out Carlos Ghosn possessed several experiences of cross-cultural differences and a “turnaround” at Renault Thus, he believed Ghosn would not only assist him to accomplish this important task but also make these two companies a strong one competing with the North American tire industry, Goodyear and Bridgestone/Firestone If there were no turn-around, there will be a lower risk and less opportunity to cement an alliance

to be a global position So why not take a high risk, creating more chances and offering potential prizes? And then the success of the Nissan Revival Plan would be the solid foundation

of the Renault-Nissan partnership for the future

In addition, cultural differences could be seen as either a disadvantaged or a powerful seed for innovation Not many CEO in Japan had a challenging decision as Hanawa, who chose a foreigner to be COO at Nissan from 1999 As Japanese culture is totally different from Western

cultures Also, language barriers would create a long distance between top management and their employees in the company For instance, when a manager has a translator, he could lose 40% of his intended meaning to his employees Thus, if the manager can accept and be open-minded to this tiny frustration, it would be easy to deal with cultural differences and drive to rapid innovation What Ghosn applied to achieve objectives and survive the whole company

His determination could create a high desire striving for Nissan’s future with the support from partnership’s perspectives and evaluate the process carefully and clearly Thus, there was no way to turn back, there was always a way to move forward in the situation of Nissan

Repercussions: Who and what will be affected by Nissan’s decision and Nissan revival plan? Directedly, the decision-making processes of Nissan would influence on Nissan’s company future, its brand image, its current employees, and its partnership with Renault Also, in an indirect aspect, Nissan’s decision would affect to the government of Japan, Japanese market and its competitors in the globe

Along with that, the Nissan Revival Plan would affect to the whole company, from the lowest level to top management with a strategic direction and a clear vision, tearing down the barriers, both visible and invisible In details, there were nine cross-functional teams would cover the reformation of business growth, purchase, manufacturing and logistics, research & development, sales & marketing, general and administrative services, finance, product, equipment and service phase-outs, and organization and value-add Then, there were ten employees – middle level managers with direct responsibilities in average in a team, and also every team had 10-member sub-teams would work together This action had led to employee’s awareness, responsibility, accountability, and shared visions to every member in the company

Before Renault and Nissan had a strategic alliance, Renault had agreed with Hanawa to maintain the sensitivity of Nissan’s culture with any cost, and Ghosn committed to that statement Thus, Ghosn and his Renault’s expatriates would have his same cultural attitudes: open-minded, competent, and enthusiastic, respecting Nissan and Japanese culture, which could not be affected by the revival plan, inside out, when going to Japan

Resilience: How would Nissan’s decision and Nissan’s revival plan impact on its personal and organisational resilience?

When commenting on Renault’s proposed merger with Nissan, Bob Lutz guessed, taking over Nissan operation would be like throwing $5 billion in a containership and sinking it in the middle of the ocean It seems like this alliance is one of the “mission impossible” tasks However, to prove everything is possible, Ghosn was consistent with Nissan Revival Plan (from 1999), and then accomplished one year earlier than planned in March 2002 Decisions were made fast to increase the importance of communication and understanding to management Then, implementing and follow-up quickly was to ensure high-quality activation

of the decisions in the plan In addition, after the plan had started, Ghosn and top management always reviewed, analysed, questioned and checked their determinations whether they were successful every six-month

Approaching to the Nissan Revival Plan, Nissan’s aim was to reduce purchase costs by 20 percent in the course of the next 3 years; owning fewer and simpler factories, reducing current capacity by 30 percent, and aiming at 82 percent, also closing 10% of dealerships; and owning stock in 1,394 companies, and free-up capital invested in non-strategic assets

After three years in commitment and a strong belief, significant results showed up Nissan has established a significant presence in automobile industry worldwide, along with a world-class production system, and forming an alliance with Renault in an effective and supportive direction

To achieve these accomplishments, 21,000 jobs (14% of Nissan’s workforce) was cut down from management, manufacturing, and the dealer net-work This action created a strong criticism in Japan Luckily, the government of Japan offered subsidies and programs to help the affected employees Moreover, one of biggest changes at Nissan was structure reorganization of cross-functional departments As a result, the staffs increased greater visibility of business process and focused business success and customer satisfaction as a whole Gradually, Nissan employees started to be more self-disciplined with inaccuracy or poor data to calculating risk-taking behavior and personal accountability

Under Ghosn’s compensation system, promotions were open to every age, period of service,

or educational level However, sometimes this method caused a lack of cooperation due to hard-core traditional Japanese compensation system As Ghosn believed cultural differences are equal to growth opportunities, these tests of authority would bring open-minded perspectives and potential experiences for young managers

In 2002, Ghosn stated that Nissan Revival Plan was over Nissan recovered quickly from difficulties And then, he set other goals for a new plan named “Nissan 180” at Nissan