This paper analyses the leadership of Carlos Ghosn, CEO of Nissan Motor Corporation. Carlos has been recognised as a successful leader whose leadership managed to rescue Nissan from its financial crisis in the late 90s. His contribution to the company, industry and society is significant.
I will start by giving an idea about the history of Nissan followed by introducing Carlos Ghosn as an individual and analysing his leadership style using various leadership theories and models. We will also assess the effectiveness and efficiency as well as the business value added to Nissan through his leadership.
Nissan company was established in Yokohama in the year 1933 to take over the manufacturing of Datsun Ltd. It was renamed as “Nissan” the following year. In 1935, the company started to produce sub-compact cars, named Datsun and started exporting to Australia. In the year 1936, Nissan bought a new production line which was intended for small passenger cars but because of the war, the company had to shift to military vehicles and ships (The Short History of Nissan Motor Company, 2013). The war had a huge impact on the company as half of the plant was taken by the occupation forces for a decade which delayed the company’s growth and by the time war ended; many customer had already switched to Toyota. To recover from that, Nissan collaborated with Austin Motors and launched a new car in the year 1958 which lead them to win The Deming prize in 1960. Nissan launched two manufacturing operations in the United States and in the United Kingdom in the years 1980, 1984 respectively. It also established new headquarters in North America and Europe with a vision to make the decisions of design, production and marketing locally. The company which had been under debts for the previous seven years signed an agreement with Renault in the year 1999 and both companies formed an alliance for mutual benefit and growth for both. Nissan Revival Plan (NRP) for restructuring which was announced in 1999 aimed to reaching sustainable and continuous global growth. The objectives of this plan were met by the end of 2001. The company currently manufactures cars in twenty locations globally. Worldwide number of sold units in 2011 exceeded 4.800 million. In addition to cars, Nissan develops and produces marine equipment as well (The Short History of Nissan Motor Company, 2013).
Carlos as a person
Carlos Ghosn was born in Brazil in 1954 to Lebanese-Brazilian parents. The family moved to Lebanon in 1960. He completed his secondary school in Lebanon before travelling to France for university study. He got his engineering degrees from the École Polytechnique in the year 1978. After graduation, Carlos worked for Michelin & Cie. for eighteen years. At the age of thirty, he became the Chief Operating Officer of Michelin’s South America’s operations which operated at a budget of $300 Million. He succeeded in turning over the South American operation from losses to profits. After that he became the Chief Executive Officer of Michelin in North America. Carlos joined Renault in 1996 as an Executive Vice President for advanced research. Renault purchased 36.3 of Nissan’s shares in 1999 and Carlos MOVED TO Japan and joined Nissan as a COO and was named CEO two years later (Millikin, J and Dean, Fu, 2004: 121-125).
Carlos and Nissan
When Carlos joined Nissan in 1999, the company was suffering from losses and it had large debts which represented high risks for the investors. It was clear that the company could not have sustained in the market for long with this operating rate. Moreover, it appeared that Renault’s future is dependent on Nissan’s recovery from this bad position after the acquisition of a large portion of Nissan. Carlos realised that a radical change had to happen and he proposed a three-year revival plan which was later known as “Nissan Revival Plan”. “When the NRP was first announced, Nissan’s executive committee announced three bold commitments; if any of these were not met, the members promised to resign:
• A return to net profitability in fiscal year 2000
• A minimum operating income to sales margin of 4.5 per cent by fiscal year 2002
• Consolidated net automotive debt reduced to less than ¥700 billion by fiscal year 2002” (Nissan Revival Plan, 2013).
In his revival plan, Carlos identified the root cause for the poor performance of Nissan in the past years. These were: “1) Lack of profit orientation
2) Not enough focus on customers
3) Lack of cross-functional, cross-border, intra-hierarchical lines work 4) Lack of a sense of urgency
5) No shared vision or common long-term plan” (Nissan Revival Plan, 2013). Carlos believed that the opportunity to improve did actually exist. He identified some success factors that would allow Nissan to recover from its crisis and occupy a high ranking in the automobile market. Nissan had a global presence. It had markets in different continents with a diverse customer base. The company also excelled in its manufacturing system and the quality of the products was never a subject of a complaint. He believed in people of Nissan as a key asset in addition to other organizational assets such as know-how, policies, procedure, customers and partners. Nissan had a leading edge in some field of the technology and its new alliance with a big and reputable company like Renault represented- according to his vision- a further success factor. All of that made Carlos believe that his plan would succeed and that he could lead Nissan back to retain its ranking in the industry.
The Revival Plan:
The revival plan was based on cross-functional groups. These groups were formed by the executive committee and they included two hundred people from Japan, The United States and Europe. The cross functional teams focused on different areas. These areas were:
“ Business Development
Marketing & Sales
SG & A
R & D
Product Phasing Out
Organization & Decision Making Process “(Nissan Revival Plan, 2013). The cross-functional teams assessed two thousand ideas and proposed four hundred proposals to the executive committee. The plan aimed at growth with increased profits and reduced debts. Business development portion of the plan aimed at developing new products and models, reducing the lead time which could be achieved by reducing the product development cycle and order delivery periods as well as the time to start selling in new markets. The plan had to target twenty per cent reduction in costs by the end of the third year. The plan suggested to centralize procurement and to shorten the list of suppliers as well as including services as a buying strategy. The plan also suggested increasing the utilization of the manufacturing capacity by shutting down three assembly plants and forcing the rest to work in two shifts. The industrial organisation was also changed into a simpler and more efficient way. Cost reduction was an important aspect of the plan and for this purpose several action were made such as reducing incentives and emphasising more on the power of the brand name, closing 10% of retail outlets and opening for longer hours, utilizing the alliance with Renault and employing E-commerce.
R&D costs were cut down by leveraging with Renault as well. Carlos has changed the model of the company from being multi-regional to being a global organisation. That required a global head quarter, worldwide strategy, centralized planning and the global control of several function of the Nissan. Carlos realized that this could not have been achieved without the key asset of the company, its people. For that, he empowered the directors for cross-functionality and orientation towards profit. He also introduced compensations for performance which included bonuses and shares options. The opportunity for career promotion existed for those as well (Nissan Revival Plan, 2013). By implementing this plan, Carlos achieved the goals a year earlier than what was initially proposed. He managed to save the company two hundred billion Yen. On the other hand, the plan had an impact on people. Twenty one thousand people lost their jobs as a result of the cost headcount reduction he embraced and therefore, Carlos was subject to criticism by media in Japan and worldwide. Nevertheless, Carlos has been recognized as a leader of change whose leadership and management not only turned losses back into profits but also contributed to a structural and cultural change within the company. His method and vision has been adopted by many leadership schools. Therefore, his contribution exceeds Nissan to other businesses and fields worldwide (Nissan Revival Plan, 2013).
Carlos the leader
Carlos’s personal and career profiles allowed him to be a successful leader. This can be illustrated by analysing different dimensions as suggested by Kotter (1990). Carlos learned from his experience with Renault as a vice president of advanced research to keep looking at the horizon while creating and executing strategies. An example of this visionary leadership is his empathy to the new generation of cars which runs on electric power as he anticipated that this is the future trend of the industry and wanted Nissan to lead it. He managed to have his followers share his vision and opened the door for them to grow and advance in their career. His revival plan relied on having the cross-functional teams brainstorm and share thoughts away from the bureaucracy and structural limitations. The plan also suggested a large number of thoughts to be assessed and presented to the board which reflects his openness and willing to listen to others’ thoughts rather than directing them to adopt his own (Nissan Revival Plan, 2013). One of the success factors for Carlos is that he believes in having no perception of the organisation or the culture before he actually gets exposed to it. He wanted to learn by experience: “…I asked people what they thought was going right, what they thought was going wrong, and what they would suggest to make things better. I was trying to arrive at an analysis of the situation that would not be static but would identify what we could do to improve the company’s performance. It was a period of intensive, active listening. I took notes, I accumulated documents that contained very precise assessments of the different situations we had to deal with, and I drew up my own personal summaries of what I learned. In the course of those three months, I must have met more than a thousand people. During that time I constructed, bit by bit, my image of the company based on hundreds of meetings and discussions” (Ghosn C, 2006: 93-94).
His leadership created a radical change to the company that lead the company towards restoring its position in the market, a mission that would have seemed to be impossible to many. Carlos also believes in sharing knowledge and experience that may help other firms grow and succeed. This is clearly depicted by the new service introduced by Nissan, the consulting services which allow the transfer of Nissan’s Production Way (NPW) which relies on Kaizen (improvements) to other firms. “Nissan Production Way is a key ingredient of our success. I hope that you will make it part of yours” (Nissan production way, 2013). Nissan consulting services also represents a radical change from a company that adopts continuous improvement theories to a consulting company that help others adopt them. Theories of leadership vary in their approach toward the analysis of a leader’s style. Some of these theories emphasise on the behaviour of the leader. In other words, they suggest that individuals are considered leaders when they act as such rather that by their personal characteristics. This is a more realistic approach than trait theories which assume that leaders are born not made (University of Leicester, 2011: 247-254). Lewin et al (1939, cited in University of Leicester, 2011:250) identified three styles of leaders, autocratic, democratic, and laissez-faire. We can think of Carlos as a democratic leader who demonstrated a sound level of engagement to the team during critical decision making. The cross-functional teams were asked to think, discuss and assess ideas and present a reasonable number of thoughts to the management. This level of engagement to the team boosted their spirit and improved the quality of the decisions made.
Fleishman’s (1953 cited in University of Leicester, 2011:251) two factor theory of leadership emphasises on two dimensions, consideration and initiating structure. Carlos managed to achieve efficient balance between these two dimensions, allowing employees to communicate their thoughts and ideas and respecting them without losing the lines of responsibilities which are required to manage such a multi-cultural and a multi-national organization. In other words, he stands in the middle between being people-centred and task oriented; this is referred to by Blake and Mouton (1964 cited in University of Leicester, 2011:253), as “Middle of the road”. Carlos believed that the solution for the company’s problems existed within the cross-functional teams and he shared this with them. On the other hand, he set the process, targets and timelines for his plan which represented a high level of task-orientation.
Contingency theories suggest that leadership style may vary based on the situation in which the leader works (University of Leicester, 2011:255-262).They also relate to various parameters such as the leader, his/her followers and the nature of the tasks which the leader is trying to complete. It is clear that Carlos possessed many characteristics that allowed him to lead efficiently. He is Lebanese by origin, was brought up in Brazil, got educated in France and has worked in different countries. All of that enhanced his capability to lead in a diverse environment and overcome the challenge of being one of few non-Japanese leading a Japanese company. His work experience gave him exposure to various areas of the business ranging from business development to top level management including research. This allowed him to bring back Nissan to its financially healthy position and- at the same time- make advancements in other business areas.
Carlos believed in Nissan as a company, in its people as assets and in Japan’s culture as a platform. For him to succeed, he had to secure the cooperation of those under his leadership. He had to make them see him as an efficient leader. He believed that this cannot be achieved without bridging the cultural gap between his origin, experience and the new environment he had to work within. He started learning about Japan, its culture, language and even the food. He believed in respecting and understanding the culture of these people while trying to make a contribution. “I would say even though the term today is not very popular, love the country and love the culture in which you are in. And try to learn about its strengths, don’t focus on the weaknesses, and make sure that all the people you are transferring with you are of the same opinion” (The transcultural leader, 2013). Carlos benefitted from the culture of Japan. In an interview with MTV channel, he stated that the commitment he and the committee will resign if the revival plan objectives were unmet, had been inspired by the culture of the Samurai who would defend his land and would kill himself in case of failure. He realised that importance of commitment to Japanese (Interview with Carlos Ghosn – MTV Lebanon, 2012).
One of the reasons for his effective leadership in Nissan relates to the nature of his mission. It was obvious that the future of the two allied companies depended on his success in leading Nissan out of its crisis. He also tried to use urgency as a motivation factor therefore; he committed dates for his tasks to be accomplished and held himself as well as the team accountable for achieving them.
The Path-goal theory of Robert House(1971 cited in University of Leicester, 2011:259) suggests that a leader can motivate his/her subordinates towards reaching the goals by helping them draw a clear path to those objectives and by giving more recognition to members who achieve those goals. When Carlos first formed the cross-functional teams, the team felt lost as of what is required from them and how to achieve it. Carlos realized this and he invited them to a meeting in which he explained the purpose of forming these teams and his expectations from them. He also promised his directors rewards and incentives for achieving the goals of his plan. In fact, before Carlos came up with his revival plan, he spent some time meeting with people at different levels of the organisation in order to understand the culture and the challenges he was going to face. The establishment of the cross-functional teams allowed him to engage large number of the company’s staff in idea generation, reflecting a participative leadership style. As a Chief Executive Officer of the two companies, Renault and Nissan Carlos enjoyed a high level of authority on his subordinates which allowed his ideas to be easily adopted. The leadership of Carlos during crisis is seen as a good example of what Bass (1985 cited in University of Leicester, 2011:264) identified as “Transformational Leader”.
He managed to raise the awareness, commitment and enthusiasm among his team. He envisioned a new future of Nissan, broke the frame that existed before him and personally committed towards this new vision. Carlos emphasised on team diversity and gender equality. Under his leadership, Nissan reached twice the rate of competitors in terms of number of female managers within the company. “On gender equality, the CEO says that when he started at Nissan, only one per cent of the top management at Nissan were women. While that was twice as good as his competitors, he was determined to increase the number of women in management still further. Today the number of women in management is five per cent, and the objective is to raise that figure to ten per cent. Ghosn says that although such targets are good, it’s more important to set a lasting, achievable trend for women that will prove that diversity delivers.” (The transcultural leader, 2013).
Transactional leadership is based on transactions and exchange. It usually occurs in stable and predictable situations (Bass 1985, cited in University of Leicester, 2011:263-265). Carlos’s style is more transformational than transactional due to the dynamic and unpredictable nature of the industry as well as his personal characteristics. We can think of few people who are willing to relocate to a new country whose language and culture were totally new to him and lead a crisis recovery.
The notion of a transformational leader has been criticised by Khurana (2002) who believed that transformational leaders can become over convinced of their charisma and may drive the company towards instability in order to allow a room for radical changes. However, these concerns seem to be invalid in the case of Carlos Ghosn whose interviews and public speeches show a greater emphasis on skills and techniques rather than personal charisma. Although he believes in changes and he directs his team to keep an eye on the horizon, he makes decisions based on rationality. Summary
In this paper we have analysed the leadership of Carlos Ghosn, the CEO of Renault and Nissan companies. Having joined Nissan in the year 1999, when the company was suffering from a severe financial crisis, Carlos managed to rescue the company and turn it back into a profit generating firm. Carlos presented a successful leadership based on vision, participation, and passion about his employees as well as contribution to the culture of Nissan. We have used different theories and models for this analysis including behavioural theories, contingency theories as well as transformations theory of Bass. In my opinion, these theories and models are complementary rather than exclusive. They can all be used to analyse the leadership model and obtain a better understanding as of what made Carlos a successful leader of a change. Carlos’s leadership has been the subject of many researches in management and his method has been adopted by many schools. Cross-cultural dimensions have a high importance in leadership. Carlos succeeded in leading people in different countries and organizations that varied in power distance, uncertainty avoidance and differed from his own culture, overcoming what was identified by Hofstede (1992, cited in Linstead et.al, 2009: 254) as challenges. Carlos managed to cut the costs by shutting down plants which made many people redundant. Some analysts argue that he could have achieved his goals by a different strategy. The fact that Carlos enjoyed high power being the CEO of both companies raises a question as to whether he would have succeeded had he been the CEO of Nissan only. Wouldn’t he have faced additional challenges from the main shareholder of Nissan, Renaut.
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