The financial situation for Japanese automaker Nissan Motor Company could not have been more dismal in 1998. The company had chalked up losses in seven of the past eight years, and it was now paying a billion dollars annually just to service its $19-billion debt.
Not that Nissan’s management had not been trying to make the right decisions to staunch the losses. It had earlier set an ambitious target of taking a quarter of Japan’s auto market, but to achieve that, the chief executive had said that the old way of making and selling cars would no longer suffice. A new strategy was required.
The CEO called for a redoubled effort to resurrect its ailing American arm, a market where customers had been flocking to sports utility vehicles. The company, the Nissan chief had urged, must also focus more on earnings than sales, slash its car “platforms,” and close its least profitable models. In short, he had warned, the company could never recover if it continued doing business the same old way. And his new way seemed the right way – providing he could deliver on it. But so far he had not. Nissan’s market share in Japan had stalled at just 16 percent, it was faring little better abroad, and losses were mounting everywhere.
Nissan sought an international partner, finally hooking up with France’s Renault. Renault agreed to infuse $5.4 billion into Nissan, but in return it required more than 36 percent of the company’s ownership and a commitment from Nissan to appoint Renault executive Carlos Ghosn as Nissan’s chief operating officer. With that, Renault inserted a very different kind of leader into the top ranks of Nissan – more confident, more determined, and more resolute.
Carlos Ghosn make clear that he had come to Japan “not for the good of Renault but for the good of Nissan,” and that would entail a new combination of not only a more aggressive execution of the company’s strategy but also a more demanding manager in charge of it. Under his leadership, Ghosn said, the struggling automaker would return to profitability in a year and halve its debt a year later. The company would close three assembly plants in Japan, increase factory utilization from 53 to 77 percent, cut suppliers by nearly half, eliminate 14 percent of the workforce, and reduce administrative costs by 20 percent.
Fifteen years later, Nissan under Ghosn’s strategy and leadership was indeed back on its feet. It had more than recovered to now outperform its industry in Japan, China, Europe, and even North America.
Nissan’s experience reminds us that firms with good strategy but weak leadership can remain rudderless. We also know that firms with good leadership but weak strategy can lurch directionless. Neither a restructuring strategy nor a turnaround leader alone could have engineered Nissan’s historic rebound. It required an individual who could both think and act strategically, a person who brought a strong sense for strategy and a personal capacity to lead its execution.
Becoming a strategic leader is an acquired capacity that can, in our view, be mastered by managers at all levels. As a prerequisite, it is important for aspirants to first appreciate the separate principles of strategy and leadership and then to combine them. We provide a six-step checklist for doing so:
The Strategic Leader’s Checklist
- Integrate Strategy and Leadership. Master the elements of strategy and leadership both separately as a combined whole.
- Learn to Lead Strategically. Pursue directed learning, one-on-one coaching, and instructive experience to develop an integrated understanding of strategy and leadership.
- Ensure Strategic Fit. Arrange a strong match between the strategic challenges of a managerial position and the individual with the leadership skills to fill it.
- Convey Strategic Intent. Communicate strategic intent throughout the organization and empower others to implement the strategy.
- Layer Leadership. Ensure that leaders at every level are capable of appreciating strategic intent and implementing it.
- Decide Deliberatively. Focus on both short- and long-term objectives, press for disciplined analysis, and bring the future into the present.
Adapted from The Strategic Leader’s Roadmap: 6 Steps for Integrating Leadership and Strategy, by Michael Useem and Harbir Singh, copyright 2016. Reprinted by permission of Wharton Digital Press.
About the Authors
Harbir Singh is Professor of Management, Co-Director of the Mack Institute for Innovation Management, and Vice Dean of Global Initiatives at the Wharton School of the University of Pennsylvania.
Michael Useem is Professor of Management, Director of the Leadership Center, and Faculty Director of the McNulty Leadership Program at the Wharton School.