1. ASSIGNMENT WEEK 6
Design Choices
Week 6
Amélie Bonin
October 7th 2012
Organization Design (MGMT 553)
Robert M. Sloyan
Benedictine University
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Over the last years, there have been many dramatic events in the automotive industry.
Two of the “Big Three” global players, General Motors and Chrysler required billions of US
taxpayer money to survive (Time Magazine, 2010). In addition, the need for change in
technology in the industry has reached a tipping point, where fossil fuels supply is limited and
nearing its end and alternate engine and energy sources will need to be developed for viable mass
production.
The survival of many businesses depends on intelligent strategic decisions. Consequently,
many companies are achieving competitive advantages by making strategic choices in terms of
their organizational design. To investigate approaches to the market, this paper will compare the
organizational structure of TATA motors an aspiring emerging market player with the one from
of Nissan Motors, an established developed market player. In addition, this paper will discuss
how the design choices of both organizations support their strategic intent.
Introduction to Tata Motors& NissanMotors
Established in 1945 and headquartered in India, Tata is the second fastest growing
automobile market in the world after China (Thomas White International, 2010) and it is India’s
largest automaker. With the acquisition of JLR in 2008, the company has acquired an excellent
platform into developed markets and especially Europe. Tata already has over 3,500 customer
contact points through the network of dealerships providing sales, services and spare parts
centers and also aggressive plan to further expand sales and service networks in India for
enhanced customer care. Headquartered in India, Tata Motors is a subsidiary of the Tata family’s
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corporate interests. The company employs 24,000 employees in 26 countries across 4 continents.
Based on recent literature on the organization, Tata would enjoy increasing market share as it
opportunistically seeks to deleverage its balance sheet through divestments and cost saving
initiatives while continuing to develop its products and technologies.
Nissan was formed in 1933 and remains a name closely associated with Japan despite the
French company Renault having accumulated a 44% stake in the organization since 1999. Nissan
employs over 175,000 people and operates a globally diversified manufacturing base with global
sales reach with products predominantly branded in its own name. Looking into the future,
Nissan seeks to further deepen its sales and manufacturing presence across emerging market
countries such as Brazil, Russia, India and China while moderating the level of borrowing used
to fund its operations (Wikipedia, 2012).
Tata and Nissan’s Strategic Intents& Competitive Advantages
While a vision points the way to the future, strategic intent provides clarity of what a
company must get after in order to realize its vision. In other words, the strategic intent of a
company describes how a company is going to realize its vision. It provides a particular point of
view about the long term vision or aspiration of the company (Promoting through leadership
2012).
In taking such into consideration, Tata proposes an environmental friendly strategy with an
emphasis on resource conservation through its technology, alternative fuels and manufacturing
processes. It also aims at providing customers with affordable transportation by leveraging its
strengths in the design and development of lower cost products. Also, Tata focuses its business
on emerging markets by expanding its product distribution economically as it moves into the
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emerging markets of China and Russia/Eastern Europe. Furthermore, Tata aspires to expand its
products range to provide products and price points within traditional Tata markets while
continuing to develop and nurture strategic relationships in markets to meet the specific needs of
different markets. In doing so, Tata aims at gaining market share by buying the know-how from
acquiring premium brands like Jaguar and by improve market share in developed countries
through “premium brands”. Finally, Tata puts strong emphasis on the quality of life of
communities by focusing on 4 specific components: employability, education, health and
environment, all of which having an impact in all the communities where Tata is located.
Similarly to Tata, Nissan shows a trend to be and remain adaptive, globally networked
and focused in the emerging markets, and move towards environmental friendly technologies.
Indeed, Nissan aims at contributing to a zero-emission society by producing mass-market
affordable zero-emission vehicles (Nissan-Global, 2012). The organization also puts emphasis on
affordable transportation due to the raise in the middle-class in emerging markets. Therefore,
Nissan aims at gaining more market share in the biggest emerging markets through the creation
of partnerships, networks and cooperation with competitors such as Daimler. As an example,
Nissan is combining its focus on emerging markets and affordable transportation with a
partnership with Bajaj for a Renault-Nissan ultra-low-cost car. Also, In Brazil, Nissan is
improving its product portfolio and network coverage in order to increase its market share.
Additionally, In Russia, Nissan is introducing new models and using Renault and Avtovaz, a
Russian car maker, platforms and production sites to bring operational synergies. Furthermore,
Nissan has also revitalized the network of national sales companies and distributors in the
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Middle-East, and is also starting to plan its moves to the next generation of emerging countries,
such as Indonesia (Nissan-Global, 2012).
With offering a mainstream, global market brand, Nissan benefits from many competitive
advantages over its competitors. Indeed, with the use of its partnership and strategic alliance
expertise and its effective operation and production systems, Nissan is able to remain a key
player in the global automotive industry. On the other end, by fostering innovation in terms of
produce, process and service and the acquisitions of strong brands to learn from their expertise,
Tata gains competitive advantage and holds a strong domestic position and a presence in the
global auto market.
The distribution of power
Based Tata’s organizational structure, it seems like its chain of command trickles down
from the top to the bottom of the organization. In fact, it appears that the influence of the current
patriarch of the Tata family, Ratan Tata, whom had joined the family business since 1962 and is
Chairman of the family’s key corporate interests, provides a symbol of leadership all across the
board. Indeed, with Tata’s senior management team entirely made up of executives unrelated to
the Tata family and including 3 non-Indian members, a fair level of autonomy from the board of
directors can also be expected. Indeed, such an ownership-management structure has been
consistently observed with other successful companies such as the GE Group, Hutchison
Whampoa Group and the Bouygues Group (Time Magazine, 2011).
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Because of its centralized structure where Tata is funneling problems and decisions to the
top level of hierarchy (Daft, 2010, p. 93), the organization can find that the correct degree of
centralization or decentralization needs to be managed in order to fit its needs given its
geographic product limitations and the global reach of the organization’s resources. Based on the
literature, Tata is designed for efficiency and therefore is vertically organized to take advantage
of its specialized skills and clearly defined methods of communication and reporting. However,
the organization takes advantage of functional horizontal communication channels as well shared
tasks in the case of product development. In fact, different divisions have the ability to reach into
new research and development initiatives that have been developed from other Tata product
group. This type of cooperation supports Tata’s objectives of sustainability and low cost
leadership.
Moreover, Tata’s organizational design confirms the company’s adaptive stance to
consolidate a more globally networked manufacturing base with a focus on dominating market
share in emerging markets via entry-level products and maximizing value from the high-end
positioned brands across developed markets as it continues to research more environmental
friendly alternate fuel technologies. Therefore, based on the information gathered, Tata’s
organizational design represents closely a geographic structure where “self-contained units are
created for different countries or regions” (Daft, 2010, p. 109). However, within their regions or
countries, Tata follows a divisional structure focused on individual products which “promote
flexibility and change because each unit is smaller and can adapt to the needs of its environment”
(Daft, 2010, p.106).
However, Tata’s ideal organizational design would evolve to the next generation of the
matrix structure otherwise called the virtual network structure where cross-functional virtual
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teams would not be limited by geographic resources. Ultimately, this ideal structure would
“extend the concept of horizontal coordination and collaboration beyond the boundaries of the
traditional organization “(Daft, 2010, p. 119). In fact, an organization that has the ability to
outsource certain tasks or functions would be able to selectively decide what resources it would
leverage within the local market. If Tata’s units of operations “were either within the
organization and densely connected or outside the organization and not connected at all”, it
would remove many of the organizational barriers they are currently facing.
In the case of Nissan, with Carlos Goshn has its CEO since 2005, among Nissan’s
alliance with Renault, many changes were made to the structure of the organization in an effort
to improve business. In fact, Ghosn identified five key areas for improvement which were a lack
of a clear profit orientation, insufficient focus on customers and too much focus on chasing
competitors, lack of a sense of urgency, no shared vision or common long term plan, and lack of
cross-functional, cross-border, cross-cultural lines of work. With a board of directors that is
much more international than a decade ago, Nissan’s organizational structure represents the
positive changes that the company underwent during the past decade. Indeed, Ghosn’s ability to
form a cross-culture senior team is appropriately represented by his current CFO being American
and his COO Japanese, which represents a clear strength from Nissan-Renault in following
through its mandate to be a leading global automaker.
Considering that Nissan has already adapted a decentralized structure “where decision
making authority is pushed down to lower organizational levels “(Daft, 2010, p.93), it continues
to evolve as an organization designed for learning and innovation. In addition, Nissan’s
horizontal structure allows for the sharing of tasks and empowerment, horizontal
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communications and the presence of many teams and an overall relaxed hierarchy with fewer
rules as compared to the tight vertical structure (Daft, 2010, p. 93).
At the present time, Nissan’s organizational design seems to be aligned to the geographic
model “with a central headquarter and semi-autonomous local units. The national organization
provides brand recognition, services and sharing of administrative functions while day to day
control and decision making is decentralized to local or regional units” (Daft, 2010, p. 109).
Regarding its ideal organizational design, Nissan has been able to achieve a vertical
network structure in many of its large markets. Indeed, Nissan has a tightly integrated network
structure where the “hub maintains control over processes and which it has world-class or
difficult-to-imitate capabilities and then transfers other activities along with the decision making
and control over them to other organizations” (Daft, 2010, p. 120). This tightly coupled but
loosely aligned relationship with its strategic suppliers provides Nissan with the flexibility to
manage and control its external resources more efficiently and effectively. As an example Nissan
is able to manage its supplier relationships through specific contract and service level agreements
as opposed to having to build a factory and employ direct labor resources.
Porter’s Three Competitive Strategies
As per Draft (2010, p.65), one popular and effective model for formulating strategy is
Porter’s (2008) competitive strategies of differentiation in terms of product offering, low-cost
leadership in the management of operations and focus on a specific and narrowly defined market.
In fact, by being able to provide a strategy for Tata and Nissan, one is better able to identify if
their organizational designs are aligned to their business strategy.
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In the case of Tata with its narrow scope and low cost competitive advantage, the
organization appears to attempts to distinguish its automobiles from others in the industry by
following a focused low-cost leadership strategy where it seeks efficient facilities, pursues cost
reductions, and uses tight control to produce cars that can be sold at the lowest price possible in
order to achieve an increase in market share (Daft, 2010). However, Nissan’s competitive
strategy seems to be aimed toward a differentiation strategy. Indeed, Nissan shows a unique
competitive advantage in forming strong alliances to produce unique types of automobiles and it
benefits from a broad, global competitive scope (Daft, 2010) as compared to Tata.
Based Porter (1980) as cited by Daft, 2010), due to Tata’s focused low-cost strategy, its
organizational design should reflect its strategy intent by showing a strong central authority and
top to bottom spam of control. The organization’s design should also facilitate tight cost control,
detailed control reports, standard operating procedures, a strong distribution system and close
supervision of employees performing routine tasks. On the opposite, due to its differentiation
strategy, Nissan should be acting as a learning organization where its structure is flexible, with
strong horizontal coordination all of which providing rewards for creativity and innovation and a
strong interest and capacity in continuous research.
Ideal organizational design strategies
As a final remark, the strategic intent of both Tata and Nissan should indeed be tailored
to their particular organizational designs. Their structures and consequent management styles are
definitely influenced by the companies’ geographic origins (Hofstede, 1980), cultural and
management norms in directing the pace of change, the degree in which information is
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transmitted across the organization, the distribution of power, all of which should be aligned to
Tata and Nissan’s strategic intent.
In fact, both organizations appear to understand that they needs to leverage the strengths
inherent in a virtual network structure: the ability to obtain talent and resources worldwide, the
ability to reach immediate scale without huge direct investment in factories, equipment or
distribution facilities, the aptitude to tightly manage and reduce administrative overhead costs,
and the capacity for the organization to be highly flexible and responsive to changes in the
environment.
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References
Alagse (2012). Promoting through leadership. Retrieved from
http://www.alagse.com/strategy/s9.php
Daft, R.L. (2010). Organization Theory and Design. (10th Ed.) Mason, OH: Cengage Learning
Hofstede, G. (1980). Culture’s consequences: International Differences in Work-Related Values.
Beverly Hills, CA: Sage.
Nissan-Global (2012). Corporate Information. Retrieved from:
http://www.nissan-global.com/EN/COMPANY/MESSAGE/MESSAGE/
Schein, E. H. (2010). Organizational Culture and Leadership.(4th Ed.). San Francisco, CA:
Jossey-Bass.
Szczesny, Joseph, R. (2010). Time Magazine. Adding Up The Auto Bail-Out: $80 billion and
Growing. Retrieved from http://www.time.com/time/business/article/0,8599,1897321,00.html
Thomas White International (2010). Automobiles Sector in India: Fast Growth.
Retrieved from: http://www.thomaswhite.com/pdf/bric-spotlight-report-india-auto-oct-2010.pdf
Wikipedia (2012). Renault. Retrieved from: http://en.wikipedia.org/wiki/Renault
