By Harbir Singh and Michael Useem
Based on the authors’ new book, The Strategic Leader’s Roadmap, this article stresses that strategic leadership constitutes a skillset that can be learned and mastered across a career. Becoming a strategic leader oneself and developing strategic leadership in others is one of the great callings of our era.
Introduction
As managers navigate a more turbulent marketplace and more global square, the integrated application of both strategy and leadership is of ever greater value. Heightened uncertainty from process innovations, technological shifts, and regulatory changes have placed a premium on the need for managers who not only think strategically but also inspire a workforce. The stakes could not be higher, as has been evident in the achievements of those who have combined both, including Alan Mulally at Ford, Jeff Bezos at Amazon, and Sundar Pichai at Google.
In a new book, The Strategic Leader’s Roadmap, we stress that strategic leadership constitutes a skillset than can be learned and mastered across a career. We draw on accounts of those who have exercised both to illustrate how they can be acquired and integrated, and we begin with the experience a new executive as Nissan Motor Company at a moment when the automaker required a wholesale turnaround if it was to survive.
Strategic Leadership in a Turnaround
The financial situation for Nissan could not have been more dismal. Its global market share had shrunk from 6.6% in 1991 to 4.9% in 1998, and even in its home market only about 10% of its models were proving profitable. 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. An enraged shareholder at Nissan’s annual meeting on June 25, 1999, demanded that Nissan’s president resign: “You’ve made mistake after mistake in your management decisions.”
Not that Nissan’s management had not been trying to make the right decisions to stanch the losses. It had earlier set an ambitious target of taking a quarter of Japan’s auto market by 2000. It was one of those aspirational goals that executives use to concentrate the mind and excite the ambitious. But to achieve that, the chief executive had said that the old way of making and selling cars would no longer work. A new strategy was needed.
The Nissan chief executive had called for a redoubled effort to resurrect its ailing American arm, a market where customers had been flocking to sports utility vehicles – though Nissan had not even introduced an SUV yet. The company, its chief had urged, must also focus more on earnings than sales, slash its car “platforms”, and discontinue its least profitable models. In short, the CEO had warned, the company could never recover if it continued doing business the same old way. And his new way seemed like the right way – providing he could deliver on the plan. But so far he had not. Nissan’s market share in Japan in 1999 had stalled at just 16%, it was faring little better abroad, and losses were mounting everywhere.
Given the widespread skepticism in Japan about whether Nissan executives could ever reverse its declining fortunes – whatever the strategy – further financing for a costly turnaround had dried up. Other carmakers, however, might have an interest in a rescue, though they were sure to exact a high price, such as Nissan’s ability to control its own strategy or even its own leadership. Still, with little real choice in the matter, Nissan sought an international partner, toying first with Germany’s Daimler and then eventually hooking up with France’s Renault.
Renault agreed to infuse $5.4 billion into Nissan, but in return it required more than 36% 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 certainly by Japanese standards more brazen. With a hint of Antony at the Forum (“I come to bury Caesar, not to praise him”), Ghosn told Nissan’s suffering shareholders at the tumultuous 1999 annual meeting, “I have come to Japan not for the good of Renault but for the good of Nissan.”
“For the good of Nissan” would entail a new combination: a more aggressive execution of the company’s strategy and a more demanding manager in charge of it. And Carlos Ghosn seemed to promise both. Under his leadership, he said, the struggling automaker would return to profitability the following year and halve its debt a year later. To do so, the company would close three assembly plants in Japan, increase factory utilisation from 53% to 77%, cut suppliers by nearly half, eliminate 14% of the workforce, and reduce administrative costs by 20%.
Fifteen years later, under Carlos Ghosn’s strategy and leadership, Nissan was indeed back on its feet. It was still far short of the goal of holding a quarter of the domestic market that its prior CEO had once targeted, and Toyota continued to dominate Japan with more than 30% of auto sales. But Nissan had more than recovered to now outperform its industry in Japan, China, Europe, and even North America.
[ms-protect-content id=”9932″]The Driver of Growth and Renewal
As Nissan’s story illustrates, 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 with a solid strategy and the capacity to lead its execution.
Moreover, strategic leadership, the integrated application of both strategy and leadership, has become more important than ever before – and is thus more vital for managers to master now. This is due to five powerful trends that we see in the markets in which many firms now operate:
Companies are more globally interdependent and competitive, and shortcomings in either their strategy or their leadership are likely to have greater downsides than in a less connected world.
The contracting lifecycles for products and the expanding change rates for markets have placed a greater premium on having a competitive strategy in place and an executive team than can execute it in a timely fashion.
Firms are increasingly contending with not just their direct competitors but also disruptive innovators and changeable customers, and that too has placed a greater premium on more vigilant company leaders and a greater readiness to redirect their strategies.
New markets in developing economies and growing markets at the bottom of the pyramid in advanced economics are attracting fast-acting and frugal competitors, and the agile exercise of strategic leadership has become critical for reaching and prospering in those leaner and faster-moving markets.
Investors are placing greater pressure on company executives and directors to exercise active strategic leadership of their enterprise.
All of these trends are intensifying, we believe, placing greater value on a manager’s ability to integrate strategy with leadership. We have researched and observed many companies and managers and have found that strategic leadership has become more essential, whatever the particular challenges – whether dealing with extraordinary times, as Carlos Ghosn confronted at Nissan, or just the ordinary situations that managers face every day.
We define leading strategically as mastering the elements of strategy and leadership both separately and as an integrated whole. It entails applying them together, and continuously drawing on both as markets morph, disruptions occur, and openings arise. In framing strategy and leadership as a single unified discipline, we are seeking to see both components applied consistently and completely. Just one or the other will not suffice, as we witnessed at Nissan before its remake. To that end, we offer a roadmap for learning and serving as a strategic leader:
We briefly expand the second roadmap principle here, that of learning to lead strategically (see The Strategic Leader’s Roadmap for expansion of them all).
Learning to Lead Strategically
Neither strategy nor leadership is a natural-born skill set. We all benefit from beginning our study of both disciplines early in our careers, but learning to become a complete strategic leader is also a lifelong endeavour. So, too, is working to ensure that those who report to us are mastering the art as well. Academic research and management practice point to three avenues for developing the integrated understanding and application of strategic leadership.
We believe that each of these learning avenues is likely to be especially effective when it combines an explicit and integrated emphasis on both strategy and leadership. Rather than a separate offsite program on strategy, for example, or a stand-alone program on leadership, a more optimal approach is to include a focus on both in all developmental initiatives. Moreover, each of these three learning paths alone is insufficient for achieving the required integration, but taken together, they constitute a potent path for learning.
Three Paths to Learning Strategically
Directed Learning. Engage in formal development programs with strategy and leadership components to strengthen one’s strategic thinking and execution.
One-on-One Coaching. Pursue opportunities to receive guidance and feedback from mentors and professional coaches to improve one’s strategic leadership.
Instructive Experience. Gain experience by taking on varied and increasing responsibilities and learning on the job what is most essential for thinking and acting strategically.
The value of designing programs that use all three approaches can be seen in their widespread use among large companies in the worldwide. According to Aon Hewitt, a human resources and management-consulting company, which conducts biannual appraisals of the leadership development practices of major corporations, the firms with the most comprehensive programs in the United States, Asia, Europe, and Latin America link the content of their programs explicitly to the firm’s strategy. Aon Hewitt has found that the top-ranked companies also arrange for executives, and sometimes directors, to actively coach or mentor their most promising managers, and that they methodically assign high-potential managers to a diverse range of developmental experiences.
Directed Learning
Comprehensive directed learning builds on a long-standing leadership prescription, well-articulated by General Electric chief executive Jack Welch, that one of the most vital functions of company management is to ensure that other managers learn to lead. Under Welch’s tutelage, GE became a “leadership engine”, investing in leadership programs, personal mentoring, and instructive experience to build its management cadres in ways that proved to be a source of sustainable advantage.
General Electric established a management development centre in Crotonville, New York, in 1956, and by 2013 it was annually reaching 40,000 GE managers. The company offered 1,800 courses and annually invested $1 billion in management development. The Boeing Leadership Center, near St. Louis, and Deloitte near Dallas, offer similar programs to train their managers, as do American Express, IBM, and Procter & Gamble. Directed learning is also increasingly coming from a range of outside providers and online programs.
One-on-One Coaching
Coaching includes one-on-one guidance and feedback on strategy and leadership from both informal mentors and professional coaches. The corporate universities of General Electric, Boeing, Deloitte, and others often include personal coaching programs for large numbers of rising managers. They are intended to provide fine-grain feedback on an individual’s existing capacities and their continued strengthening.
Andy Grove, who served as CEO or chair from 1987 to 2004 of Intel, had been coached earlier by Gordon Moore while at Fairchild Semiconductor, for instance, and Grove himself became mentor to Steve Jobs in the late 1970s during Jobs’ early tenure at Apple. Grove had also coached a generation of Intel executives and other Silicon Valley entrepreneurs including Oracle’s Larry Ellison and Facebook’s Mark Zuckerberg.
Instructive Experience
Directed learning programs methodically assign many of their rising managers to ever more senior roles where integrating strategy and leadership become ever more paramount, and this is where the third avenue for learning comes into play. Instructive experience involves a recurrent willingness to take on varied and rising responsibilities and to learn from those diverse engagements what is most essential for thinking and acting strategically.
The rationale for assigning rising leaders to increasing responsibilities as a learning method has been well expressed by PepsiCo chief executive Indra Nooyi. When asked how she managed the stepping stones that a rising financial executive should have on the way to becoming a CEO, she replied, “You pick three or four people you think can be moved along and give them broad experiences,” she reported. “Not necessarily running a business, but put them in charge of big transformational projects or send them overseas. Give them experiences they would never have in the traditional CFO job and have them open their minds to all kinds of experiences, give them the ability to shape an agenda.”
Conclusion
From having witnessed Ghosn’s turnaround of Nissan executives in action at other companies, it is evident that the integrated application of strategy and leadership is essential. One without the other can take a firm toward the abyss, as we had early seen at Nissan, or grow it globally, as we had later seen at Nissan.
Becoming a strategic leader oneself and developing strategic leadership in others is one of the great callings of our era. This is especially true in an era marked by uncertainty, complexity, and change when company strategy and leadership are especially consequential for a firm’s performance.
And though we sometimes say that an individual is a gifted strategist or a natural-born leader, we know from research and experience that both are learned – and that we can thus all become a more strategic leader if we stay on the learning path of self-directed study, personal coaching, and stretch experience that is the proven avenue for getting there.
[/ms-protect-content]
About the Authors
Harbir Singh is Mack Professor of Management, Co-Director of the Mack Institute for Innovation Management, and Vice Dean for Global Initiatives, Wharton School, University of Pennsylvania. His research and teaching interests include corporate governance, corporate restructuring, joint ventures, management buyouts, and strategies for corporate acquisitions.
Michael Useem is Egan Professor of Management, Faculty Director of the McNulty Leadership Program, and Director of the Center for Leadership and Change Management, Wharton School, University of Pennsylvania. His research and teaching interests include corporate governance, risk management, decision making, organisational leadership, and change management.
