Strategy and Leadership … like Peanut Butter and Jam

Volume 16 Letter 11

As Forest Gump reminded us some things just go together like peas and carrots, apple pie and ice cream, bacon and eggs and chocolate and caramel … ok, I made the last one up because it’s my favorite but you get my point. In business some things just need to go together and at the top of the list are strategy and leadership. Take the case of Nissan Motors.

In 1999 Nissan Motors was collapsing under $20 billion of debt. Of forty-six car models sold in Japan only three were making money. Nissan was in a huge crisis and in desperation developed a turnaround strategy which called for a big reduction in jobs, shutting down plants, reducing the number of suppliers and shareholders and selling off the prized aerospace unit.

The strategy was just what the car doctor ordered but to make it happen Nissan leadership needed to buck the Japanese culture of lifetime employment and seniority based promotions. As if that wasn’t enough, Nissan also needed to dismantle the complex web of cross holdings between suppliers and the parent Nissan – the famed Keiretsu system. The task turned out to be too much for Nissan leadership and with losses mounting Nissan turned to Renault for help. They got it in a 4 billion dollar cash infusion and a man named Carlos Ghosn who joined Nissan as CEO.

With most of the original strategy intact Ghosn announced “Nissan’s Revival Plan” in October, 1999, which stated that Nissan would return to profitability by the year 2000, have a profit margin above 4.5% of sales and by the end of 2002 they’d reduce the current debt by half. Ghosn offered to resign if the goals weren’t met.

As an outsider Ghosn knew he’d need to get Nissan managers on board and for them to take ownership of the strategy. To this end he developed diverse, cross functional teams of both younger and older managers. The goal of each team was to create plans and implement ideas in line with the grand Nissan strategy. In essence, each team was to develop their own strategy for executing the strategy!

Ghosn knew he’d need to ensure the value proposition of the strategy was always linked with the execution. Mission critical was to make the grand strategy simple enough that it could be easily communicated and understood up and down the line ensuring everyone pulled together in the same direction. In this case the grand strategy set the direction -and the cross functional team strategies set the “how”.

By the end of 2000 Nissan’s net profits jumped to $2.7 billion up from a $6.4 billion loss the previous year. Margins were up over 4% and three years later Nissan had margins over 9%, more than two times the industry average. Carlos Ghosn didn’t need to resign.

What can we learn from Nissan’s turnaround:

  • Get the strategy right: The team at Nissan had it figured out before Ghosn arrived but couldn’t get past cultural roadblocks in order to execute.
  • Leadership is strategy execution: Expecting others to simply follow orders is naïve. Ghosn found a way to activate Nissan staff who were initially unwilling to break with tradition.
  • Strategy execution involves everyone: Ghosn empowered work teams at Nissan to develop mini strategies for their market / their plant / their region so they owned the new strategy.
  • Good leaders capture good ideas: Ghosn’s strategy engaged people throughout the organization allowing new ideas that enhanced the value proposition to the client to rise to the top.
  • Leaders communicate the strategy: To secure support from his team Ghosn set the overall direction and made it easy to understand.

Next time you’re eating your peas and carrots or apple pie and ice cream, remember what mom always said: “Leadership is strategy in action” ………oh…… and “don’t chew with your mouth open”!

Story from The Strategic Leaders Roadmap, Singh and Useem interviewed in Knowledge at Wharton Management 101: The Marriage of Strategy and Leadership

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