While the corporate world waits to see whether Carlos Ghosn, the one-time chair and CEO of both Renault and Nissan, can extricate himself from a Tokyo prison cell, his legal travails and those of the two car makers he once led have turned headlights on the management of corporate alliances.
Ghosn was essentially driving three vehicles: the two auto companies but also the alliance that has made them highly successful auto manufacturers.
But with Ghosn removed from leadership many wonder what the affair reveals about the management of corporate alliances. After all, alliances have become an increasingly important means for companies to steer large-scale capital investment and innovation.
The issues were further underlined with news this week that the French government, the largest shareholder in Renault, is pushing the French car maker to appoint a successor. Little was said about the future leadership of the alliance.
Renault and Nissan are not alone in forging a successful alliance. Others include Starbucks with Barnes & Noble, Disney with Hewlett-Packard and in the world of finance and tech, Apple Pay and Master Card. As recent as this month, Ford and VW were reportedly exploring options for coming together in a strategic partnership.
What alliance partners are looking for is a strategic boost from working together. And, in an age when legacy companies desperately need to access the latest disruptive technology, an alliance is a key option if organic development, merger or acquisition seem unlikely routes forward.
Of course, digital tech is not the only reason. Alliances like Renault-Nissan may be formed so investment can be pooled and cost savings achieved through synergies. Indeed, before his arrest Ghosn was working on the “Alliance 2022” plan to double annual synergies to €10bn in the next three years. That would mean increasing the use of common vehicle platforms and sharing advances in electric engine technology.
But how do alliances run out of juice? It’s worth considering what the experts say. According to one account, alliances can seize up when the parties involved find they’ve reached their initial objectives and, according to Bart De Roover, a professor and corporate alliance expert at INSEAD, become focused on “extracting value” rather than creating “mutual value”.
At this stage the alliance can require re-ignition through some form of “strategic readjustment”. If that doesn’t happen, De Roover writes in a recent paper, “leadership legitimacy tends to be challenged.”
“After all, the success of the alliance proves it has served its purpose. The implicit expectation of both parties is often a return to a more classical management model, including a self-effacing, humble role for alliance leadership,” De Roover says.
If the central figure in the alliance turns out to be the glue holding things together, that can form an ever bigger challenge to the integrity of the partnership. Which throws a spotlight on how alliance partners can embed their mutual interests beyond a central figure head. Andre Spicer, a professor at Cass business school, goes as far as warning that Ghosn’s departure could be an “existential threat” to the alliance itself because of his central role cementing the arrangement.
“The alliance could fall apart,” says Spicer. “This would have profound implications for the direction of each company—particularly in an industry which is undergoing a series of significant disruptive changes.”
Some experts have argued that Renault and Nissan’s objectives have indeed diverged. According to Seijiro Takeshita, a professor at Shizuoka University commenting on CNBC, the French company is now focused on maintaining employment levels in France (the government is a major shareholder) while the Japanese company is seeking autonomy from Renault.
Meanwhile, observers like De Roover say the two companies were never entirely on the same page. At the outset, he says, Nissan needed urgent financial help while Renault was eager to plunge into Asian markets where Nissan was already selling.
It’s worth noting too that the French government seems more concerned in its public statements with Renault’s leadership than it does with that of the alliance.
And that could be storing up trouble for the future. As De Roover writes: “Strategic alliances are perhaps more important than ever in today’s world of fast-changing market conditions and rapid innovation. In these disorienting times, two (or more) heads are better than one for finding strategic advantage.
“But the dizzying rate of change requires that partnerships, once formed, are routinely revisited to ensure they are still generating value for all parties. If the benefits are no longer distributed evenly, or one or more partners have undergone a serious shift since inception, big changes may be necessary. And that is where the once-exemplary Renault-Nissan alliance now stands.”
As De Roover points out, Renault has seen alliances crumble before when its partnership with Volvo broke down in 1993. The question is whether its link with Nissan can be saved, or whether it is destined for the scrap heap.