Two of the world’s renowned automakers, the French Renault SA and the Japanese Nissan Motors, established an alliance in March 2002 in order to take joint global ventures and share the knowledge and expertise and form alliance strategies which can overcome the global challenges and increase the market share and competitiveness. This alliance took place at the right time when both the companies where in need of it. It later proved to be successful too as it filled the gap of their management and production deficiencies. Moreover it took place under the experienced leadership of Schweitzer and Ghosn, the CEO of Renault and Nissan Motors. They integrated the running of the alliance in a way which kept the uniqueness of the culture and identity of the two companies alive.
The Pearce-Robinson model
Pearce and Robinson have come up with a model which analysis the strategic management decisions in an efficient manner by forming a relationship between the different management components. The aim of this alliance was to improve the long term performance of Renault and Nissan and work together towards the accomplishment of common goals. It resulted in an increased 9.2% world automaker market share altogether.
Company mission and internal analysis
Renault had a market presence in the home region that is France but due to the imbalance in the company’s financial performance the CEO Schweitzer was looking for a potential partner for the merger. The deal with Volvo couldn’t be successful which lead to the consideration towards the Japanese Nissan which was going through Asian financial crisis at that time and moreover at the verge of bankruptcy. According to Schweitzer the company itself had prospects to do well and had high production quality however they were undergoing poor management skills which had lead to lower profit margins for Nissan.
It is very important to know the mission of the company as it reflects the scope of the operations, when the alliance took place Renault had done their research and understanding well and they were clear about the long terms objectives and plans. They had their own targets to meet. They knew their operations, shortcomings and benefits of each of the parties. Renault had a greater share in this alliance therefore the CEO of Nissan was appointed by Schweitzer who was experienced, talented and capable of running Nissan towards a profitable end.
Social responsibility is an integral part of company’s mission as a failure to meet this target can lead to lower sales and adverse impact on the reputation and hard earned image of the company. It reflects its concern towards its stakeholders. Successful companies are those that integrate this aspect of business into their values.
The work of the alliance was done by 11 CCT’s (Cross Company Teams) comprising of around 500 people who dealt with the issues related to the functioning of the alliance such as technology, manufacturing, purchasing, logistics, planning, sales and marketing.
The members devoted some of their time towards the CCT along with their routine work at Renault or Nissan. These were all skilled individuals who were selected on the basis of capability and experience. Each CCT was headed by a person known as the pilot. These teams would meet every month and gave a report of their analysis to the Alliance Coordination Bureau which further assisted the teams in resolving issues and giving them advices. Apart from that the alliance members met at the two Alliance Conventions where the senior executives of both the companies and CCT members reviewed the performances and targets to ensure decisions.
One of the challenges faced by the alliance was that the employees from both the sides were required to work together, however they belonged to different countries and had different cultural backgrounds and way of working. At the time of establishment of the alliance it was decided that the two companies would work together without having any kind of cultural conflicts and problems or interference in each others operations. Moreover the two companies were geographically far away from one another.
There are factors in the external environment which can have a direct influence in the firm’s decision making. These are the factors on which the firm has little or merely no control, they are like the law and order, government regulations, competitor’s actions, political instability, terrorism or pressure groups. The external environment in the strategic management model comprises of the industry and its operating environment. By analyzing the external environment it gives a chance to the company to find a range of attractive opportunities. Based on these choices informed decision making and rational investments are made for the long run. The external environment would help to find out the stance of the alliance in terms of other automakers. This alliance had been successful and had brought the Renault-Nissan as one of the top five auto makers in the world. It makes competitors analysis also easier.
The strategic analysis and choice is one way of finding the most suitable strategies that would sustain the competitive edge of the company. It focuses on the strengths and the core competencies in order to maximize the shareholders wealth.
The long term objectives
These focus on the outcome of the business activity. Business objectives and strategies vary on the kind of resources, capability and competitiveness in the market place. The Renault-Nissan alliance aimed at cost reduction, increase in the profitability and they had their own financial objectives to meet. The companies wanted to work together for the basic research and development. This project was expected to cost 85 billion yen and both of them decided to contribute towards it. Nissan was hoping to increase its market share and enter the South American markets through their joint distribution channels. These generic objectives are supported by the grand strategies which are the means to achieve the long term goals.
Short term objectives
The company aims to achieve the short term objectives within a period of one year. These help to achieve the long term goals. These are like keeping the employee morale high and motivated for future growth. Functional tactics are the ones which lead towards the achievement of the short term goals and create a competitive edge for the company. For this alliance it was important to make the employees understand the usefulness of the coalition so that they willing to cooperate and contribute.
Reengineering and restructuring of the organization
The formulation of effective policies is a key to success. These policies are necessary because they direct the management and the employees towards the end goal. Until this point the management is aware of the objectives and policies and strengths and analysis of the external and internal environment. Now the focus is more towards the internal side where the decisions on how to take the necessary steps are made. This includes restructuring the organization and reengineering the process, the leadership, culture and values of the alliance in this case. The Renault and Nissan had experienced a low cost and saving in their cost of production. This was due their venture of joint purchasing of parts and other services and the focus on more of their functional areas.
Under the alliance both the companies had adopted the strengths of one another and utilized it for their combined benefit. Such as Renault had adopted Nissan quality management system which was very efficient and Nissan was using Renault’s design of models. Renault-Nissan had a 50/50 joint venture, the employees from both the companies worked on different geographical locations. General Managers and account managers were appointed to keep the track of the purchases and the supplied. The alliance was able to meet its financial objectives. Over all the alliance was benefiting from the joint purchasing, however there were some challenges too for the alliance.
The Renault engineers and experts had a much rigorous approach towards buying the common parts of the vehicles but the Nissan engineers were much more conscious. This difference was due to the different target market of each company. Renault’s target was most of the European market whereas Nissan was focusing on the Japanese and the American market. Therefore the two sides had to reach a consensus on such issues.
Another challenge faced was that the employees at Renault were not satisfied they thought that Nissan was benefiting more from the purchasing venture relative to Renault. This would affect the motivation and the willingness of the Renault management to take an active role in the purchasing decision.
Strategic control and introduction to Kaizen – continuous improvement
Firms need strategic control in order to track their problems and come up with an appropriate strategy. From the past ten years the element of continuous improvement is being practiced by all the manufacturing and production units. This is because of the advantages it brings to the over all production process. It gives a standard strategic control process for the improvement of all the operations of the business. Despite the fact that Nissan profits were lower than other car makes however they has one of the best manufacturing capability and was known for its reliability.
Even before the establishment of alliance Nissan’s manufacturing was considered one of the most productive in Europe and Renault had sent a team to their manufacturing plant as a benchmark for their own operations.
Nissan CEO Ghosn believed that Nissan production quality and engineering processes were of very good quality and therefore was helping Renault to upgrade their technical side as well. Nissan advisors were working with Renault employees. Moreover Renault had created dexterity schools teaching as well. As a result of this Nissan had set its practices of quality control as the standard benchmark for the alliance.
The Nissan influence was visible in the plants of Renault. Experiments were held in order to practice the standard operating papers which reflected performance tasks done at work. These included simple tasks such as the usage of the screw driver and the painting of the car and other such skills. The workers at Renault took this in a positive way and accepted the change even though they were not used to work through the Japanese way of working such as the role of the assembly line workers but the workers from the two companies were getting along well with one another. The entire production process and reporting methods was changed according to Japanese style. However the benefits were large as a whole for both the sides. This reduced the errors on the assembly line and boosted morale of the assembly line workers. A well motivated workforce leads to better production and performance results for the alliance.
Nissan also introduced Renault to the concept of Kaizen that is continuous improvement. This technique helped the Renault workers to do things at the right time and reduce the wastage of inventories. The French did not believe in standardization of process but with the Japanese approach they understood the benefits that standardization leads to better organization of the processes and adopted it. At Renault the lack of standardization lead to inconsistent production techniques in the past. Targets were set for the team of workers and efforts were drawn to achieve those targets.
Renault and Nissan were sharing their joint distribution channels and joint informational systems. Moreover the company decided to share the same platform. A platform is that part of the car which is not visible to the customer. All the cars produced by Renault and Nissan would use the ten platforms under the joint development. New and existing models made would be using the platform B and C but at the same time retaining the unique design of each model in order to keep the brand identity alive among the consumers.
Renault and Nissan both were headed by Schweitzer and Ghosn. These executives were giving special attention to the smooth running of the alliance by appointing senior level and qualified executives who were doing their part of the work well. The senior executives in the company and the employees were satisfied with the approach of the CEO’s of the companies, as they realized that both the companies come from different background, therefore consideration was given to this and based on that efforts were made to keep the uniqueness and culture of both the sides intact. Nissan welcomed the appointment of the senior executive by Renault and worked together with him without any conflicts or disagreements. The senior management’s relationship with the employees and other executives was good. The problems were discussed and communicated to the management which led to increased effectiveness and efficiency. The brand loyalty and brand value was sustained in the alliance.
The management carried out surveys which showed that the employees from Renault and Nissan were committed towards their contribution in the success of the alliance. The employees from both the sides were well informed about the product development strategy and cost reduction policies and other changes and amendments that took place in the alliance; however the employees demanded that they should be given more information. Special consideration was given to the fact that the policies and strategies are not imposed on the employees and eagerness and willingness is created for the work by the employees as this would automatically drive the alliance towards success.
The future of most of the companies would come from global brands and the foreign markets. English was chosen as an official language and as the means of communication in the alliance. Employees from both the sides were not familiar with it therefore had to work hard in order to take training sessions of English.
The balanced score card approach
The success of any organization can not be only determined on the basis of financial figures or operational figures alone. Due to the competitiveness and the global reach of the brands, managers want an overall picture of how well their brand is doing in the market. Balanced scorecard is one way which is likely to fulfill this demand of the managers. It takes into consideration the financial measures and relates it with the operational success, the customer satisfaction and the internal processes, improvements and innovation in the technology that would drive the company towards the future financial performance.
This method would help the Renault and Nissan alliance to look through the business from four different perspectives. These are the basic ingredients of success that Schweitzer and Ghosn can take in order to increase the efficiency of the alliance. The score card will consider the customers perspective, the brands internal process and the opportunities to create value and the shareholders value. For each segment separate goals would be set and measures drawn for the success. It is faster way of analyzing the business and overcoming the shortcoming too.
Implementation of a new strategy
Today the success of the companies is derived less from the physical assets of the company and more from the other factors such as knowledge workers, the retention of the best work force and research and development and innovation. As the brands are expanding and going global the company and the employees have to come across structural changes and cultural shocks as it takes time for the employees to adapt to the changes. Renault and Nissan are an example of two companies which have different organizational structures as they come from two different regions in the world. However the two brands have been able to create the magic of the corporate level synergies. The management system of an organization is the one that sets the procedures and aligns the organization. The integration of the balanced score card approach into the management is one successful tactic to achieve the desired outcome of a diversified business organizations as it clearly focuses on each organizational unit and targets are set and are to be met. At this point the role of the heads of the company is very important as they will be the one who will direct strategies and communicate them to the other subordinates. Renault- Nissan should also use this strategy in order to enhance their efficiency.
Implication on the middle managers
The CEO had appointed a team of dedicated staff which was working whole heartedly and cooperatively for the alliance. The middle managers in the alliance will come across the same kind of difficulties and challenges like the other executives and employees in the company. The managers were willing to undertake the change and cooperate with the members of the alliance and did not show any sign of discontent or failure to undertake tasks. Their role now was not only confined to handle the issues in their particular area of business, but they had to take several other considerations as now joint ventures took place where an understanding of the over all merger had to be considered. There were several policy changes such as English language and the Kaizen way of working for the Renault workers; this was something new for them. They had to work patiently with the employees of the other company and adopt their superior practices. Therefore as a manager one had to motivate the employees and help them adjust to the new working environment. The middle managers had the support of the senior executives; moreover the work was much more structured and organized now which had made it easier for the manager to handle it as there were less chances for errors and wastage. The alliance and its new strategies had enhanced the ranking and value of both the global brands, therefore the middle managers would also take it as a constructive step since decisions were not imposed on them and they were rather motivated and encouraged to keep their culture and sovereignty of the brand.
The Renault-Nissan Alliance has proved to be a success. It took place at the right time and under the right kind of leadership where the leaders were well aware of the purpose and the objectives of the alliance. The employees from both the sides cooperated and the policies and changes were welcomed from the senior management. The brand loyalty and uniqueness was kept intact where both the companies were able to learn from their experiences and adapt the positive traits from one another and over come their own short comings. Their joint ventures and planning also proved to be a success. The employees were satisfied as the changes were not imposed on them as the alliance became a learning organization. Efforts were made to make them understand. The challenge to Schweitzer and Ghosn was to coordinate yet maintain the culture and uniqueness of the company’s integral and they had been successful in doing so, however a few policy changes such as a balanced card approach and other corporate level strategies can further improve the running of the alliance.
Fagan, P. L., & Yoshino, M. Y. (2003). The Renault-Nissan Alliance. Harvard Business Review .
Pearce, J. A., & Robinson, R. B. (2007). Strategic Management: Formulation, Implementation and Control. McGraw Hill.