Nissan: Strategic Issues, Case Study Example

The major strategic challenge facing Nissan has been its inability to generate profit. The company has had only one profitable year in the last eight years. Sales have been declining and the company’s production costs are excessive. The management lacks a comprehensive strategic plan and there is poor understanding of the customers’ preferences. In addition to operations, even the company’s supply chain network is highly inefficient and complex. Different departments within the company rarely collaborate with each other and the company’s product portfolio is also poorly planned, resulting in only 4 profitable models out of total 43 models or less than ten percent. Even the company’s distributors don’t adequately promote the company’s products.

Analysis

The company lacked any clear strategic vision which created an environment of confusion and may also explain why there was lack of collaboration among the departments. The company also didn’t have any particular business strategy to compete in the market and differentiate itself from the competition. The company was not following low-cost strategy because it had no clear map to achieve low operation costs. Average production costs were higher due to under-utilized manufacturing plants and the company operated a supplier network of numerous small-scale suppliers with frequent ordering which also prevented the company from taking advantage of trade discounts and economies of scale. Similarly, the company didn’t analyze the profitability of individual models to eliminate less lucrative ones and improve overall profitability. The company was not even pursuing differentiation strategy because its products lacked any distinctive features such as more appealing designs or higher reliability than competitors’ offerings.

Nissan’s problems were also due to poor monitoring and environmental analysis. The company didn’t exert influence over the suppliers because It dealt with several suppliers so each supplier accounted for only a small proportion of the company’s overall supply needs and in addition, the company also imposed overly exact specifications which increased costs. The company also didn’t study its competitors otherwise it might have discovered that its purchasing costs were quite higher and also would have learnt something from the competition. Similarly, the company also did little to understand the preferences of its customers and respond to them. The design decisions reflected the priorities of the engineering department rather than the preferences of the customers. The company also exerted little influence on distribution network which was basically managed by dealers with little incentive or motivation to promote company’s products and build long-lasting relationship with customers.

Nissan’s management also didn’t take steps to motivate employees or implement accountability standards. The employees had lifetime employment guarantee and the promotion occurred on the basis of seniority. This employment structure didn’t provide employees any incentive to work harder because better performance didn’t create advancement opportunities or resulted in performance bonuses/rewards. There was also no pay equity because employees’ contributions were not reflected in their compensation packages. In addition, the management rarely consulted the employees for feedback or opinions which also reduced their commitment to the organization. For employees, the job became merely a source of income with little or no job satisfaction.

The lack of collaboration among the departments also led to operating inefficiencies and low quality products. This lack of collaboration meant the departments rarely exchanged ideas to understand each other’s work and issues or share ideas to improve product quality and company profitability. Each department pursued its own interests, even at the expense of corporate interests. The management also lacked clear focus and either didn’t understand the severity of problems or lacked the will to tackle them.

There was also lack of planning activities at Nissan. The fact that Nissan’s production facilities had excess capacity may also imply that the management didn’t utilize forecast tools and market research to understand market trends and organize production activities accordingly. Some of these production inefficiencies and above average production costs might also have been due to the presence of unions. But the company could have prevented more employees from joining the union had the management enjoyed close working relationship with employees and attentively listened to their potential concerns and issues.

Proposed Solutions

One of the proposed solutions include merit pay plan in which the salary increases and promotions will be based on performance and not seniority. The company’s upper-level managers will also be able to earn stock options. This is an effective compensation plan because it will align the employees’ interests with those of the company and provide them the incentive to aim for higher performance standards. The new management also aims to set clear accountability standards which will help all employees better understand their roles and responsibilities with the company and encourage them to take greater control of their work. The company’s leadership has earned credibility by setting the same standards for themselves as well and COO Carlos Ghosn has even stated that he and his executive team will resign if they could not make Nissan profitable by the end of 2000. It sends a powerful message to everyone that the company’s new culture is performance-driven and not status quo-driven.

By closing five factories and eliminating 21,000 jobs, Ghosn has improved asset utilization rates as well as employees productivity at Nissan’s production facilities. Similarly, the number of sellers have been reduced which will not only make the supplier network less complex and more efficient but will also reduce company’s supplies cost through economies of scale and less-frequent ordering. Ghosn has also encouraged departments to work closely with each other to make supply chain network more efficient and reduce costs. This will enable the departments to understand each other and work together towards achieving the corporate objective of improving profitability.

In order to improve Nissan’s product appeal, Ghosn has hired innovative designer Shiro Nakamura which may help the company differentiate itself through appealing designs and respond more effectively to consumers’ tastes. The company has also reduced the number of dealers while taking steps to improvement at the remaining ones. This is the right step because it will enable the company strengthen its relationship with customers through better customer service and brand engagement. This also shows that the company is exerting greater influence on the entire value chain so that nothing is left to chance.