### Management 101: The Marriage of Strategy and Leadership

Management 101: The Marriage of Strategy and Leadership

Focusing on strategy alone -- or leadership alone -- misses the big opportunities. Two Wharton professors offer six steps to integrate the two.

### Management 101: The Marriage of Strategy and Leadership

After years of teaching courses in management, Wharton professors Harbir Singh and Mike Useem realized something was missing from the traditional lessons on how to be an effective manager. Most of the instruction seemed to focus on leadership or strategy, emphasizing one or the other. However, the professors contend that the best managers must possess both skills. In their new book, The Strategic Leaders’ Road Map: Six Steps for Integrating Leadership and Strategy, Singh and Useem provide a six-point checklist for managers to develop strategic thinking along with strong leadership skills. The professors visited with Knowledge@Wharton to talk about the book, which is filled with firsthand accounts from CEOs who have been there, done that.

An edited transcript of the conversation follows:

Knowledge@Wharton: One of the main points of the book is that some companies have really good leadership but fail on their strategy. Some have great strategy and fail in leadership. It’s the integration of the two that you talk about as being so important. Could you give an overview of why that’s so important and why companies aren’t doing it today?

Harbir Singh: There’s been a lot of emphasis on leadership over the past few years. It’s an evergreen topic. If you look at Microsoft and Steve Ballmer in his term, Microsoft was dominant. Steve Ballmer was seen as a visionary leader and inspired the troops. In fact, his meetings were legendary. The passion, the inspiration and so on. But also in his tenure, they missed the boat on the mobile applications of Microsoft and actually opened the door for many other players in the industry. It has taken some time to try to respond to that. That’s an example of very, very good leadership but really not having enough strategic inspiration and discipline. In fact, what we’ve learned is that the ideas coming in on the mobile side were set aside in favor of the desktop. Sometimes a strategic choice can limit the benefits of very effective leadership and vision.

Michael Useem: Harbir and I have often taught, almost back-to-back in mid-career programs, strategy first and leadership second. And we’ve often cross-talked a bit. But a year and a half ago, we sat down with the chief executive of Nissan and the CEO of Renault. We came to know quite a bit about the Nissan turnaround, which is one of the great turnarounds of the modern era.

The Japanese auto producer was pretty much going off a cliff back in 1999, not because he did not have a good turnaround strategy. But the incumbent top team at the time just couldn’t seem to make it work. So, good strategy. But the thinness of the leadership at the top, in terms of making things happen, driving change through the organization, ultimately crippled the organization. That is when Nissan turned to Renault for a big cash infusion of $4 billion counting. Nissan brought in Carlos Ghosn, who became Nissan’s new chief executive officer. His strategy was more than what he had when he came in there, but his leadership was very different. “Sometimes a strategic choice can limit the benefits of very effective leadership and vision.”–Harbir Singh Looking at that case in some depth, I came to really appreciate that you’ve got to have a great strategy. You’ve got to have a great leadership to go with it. If you’re a little bit short on one, you’re going to be in trouble. Knowledge@Wharton: Starting about 15 years ago, there was a lot of talk about strategy and execution. Strategy was very important, but the idea was that it’s not that hard to come by. But many companies with good strategies weren’t doing that well because they couldn’t execute. How does your idea of the marriage between strategy and leadership differ or complement that whole idea? Singh: Execution was the rage 10 years ago, and particularly with the financial crisis, even more so. Let’s squeeze out costs, let’s become more efficient and so on. It’s clearly very important, but what we’re arguing is that you need inspirational vision from the leader. You also need a very clear value proposition for the customer. And then execution is the way you can deliver value, create value. In some sense, if you look at the Nissan case, what you see is what we call executable initiative. So, the value proposition that you decide to have. How are you going to navigate through your organization and get the best possible execution? We also realized that strategy is owned by everyone. We have a concept in the book called “layering and leadership.” In the Nissan case, they had cross-functional teams that were largely people in their 40s and late 30s, and even people reporting to them, who kind of brought up ideas that fit with the architecture that Carlos Ghosn had created along with his senior team. The idea is, execution is not just following orders. It’s creating and enhancing the value proposition to the client and getting the ideas from people throughout the organization. Knowledge@Wharton: You want staff to have a strategy on how to implement the strategy? Singh: Yes, but there’s a very lean set of initiatives that you pursue so it doesn’t get frittered away or lost in the confusion, so that people also know what they’re contributing to. That’s important. Another example is when Proctor & Gamble bought Gillette. They bought Gillette at a very, very high price because it was an auction. Most people thought there was not much value left. Gillette was already dominant. But what P&G ended up doing with Gillette was creating a whole new set of shaving creams and other assorted products that go along with the shaving equipment. Also, they created a better supply chain. It’s really how you link the value proposition with execution within the organization, then leadership that can kind of summarize what the key direction is so people are not going in opposite directions or frittering away their energy. Useem: P&G offers a really nice example of why we need to think about execution plus. In the case of the acquisition of Gillette, as I recall it was a more than$40 billion deal. It was a huge decision. Then chief executive A.G. Lafley needed a lot of thinking through. He needed good counseling and smart people that would work with him. In that particular case, he turned to his own board of directors.

You wouldn’t think of a board normally as getting into the mechanics of an acquisition. The pricing, how they were going to keep the CEO of Gillette, if Gillette did come in to Proctor and Gamble. But the board of A.G. Lafley at the time had six former CEOs on it, and their leadership experience, their leadership background, their leadership instincts proved vital for Lafley’s decision to go through with the acquisition.

To generalize that out, I think most of our readers and viewers recall the book by Larry Bossidy and Ram Charan, Execution: The Discipline of Getting Things Done. It was a best-seller, deservedly so, because it was really about taking your vision and your strategy and bringing it into reality. They were quite critical of several companies that they name in the book for having failed to do that. Harbir and I were very influenced by that line of thinking.

What we’ve added here is a call to take a look at people in the firm, on the board, below the chief executive, below the division heads, not just for whether they can execute but whether they have a range of leadership capacities, like inspiring people. You wouldn’t think of that as part of execution. But if you move into a broader terrain of leadership — good decisions, timely actions, listening to the customer in all kinds of ways — it is a more encompassing concept that has to be matched up with strategy. If you’ve got both, we think you’re going to go in the right direction.

Knowledge@Wharton: You need someone that can get that employee engagement going?

Useem: Exactly.

Singh: Also, a decision process. We talk about deciding deliberately, and the idea is that the quality of discourse matters in a company. There has to be enough openness to new ideas but also a sense of selection and then proceeding forward. Many companies struggle with this. Either you have a top-down flow of decisions that people execute but are less involved with direction. Or, perhaps bottom-up. But I think to allow for healthy debate and discourse, then choosing a direction and moving, we talk about deliberatively deciding. I think that’s an important piece around this.

Knowledge@Wharton: It’s always good to learn from companies that have done it well and been successful. It’s also interesting to get lessons from companies that haven’t done it well. What would be an example of a company that had good leadership, but their strategy just fell short?

Useem: To pick a contemporary example, Wells Fargo has been in the news for a number of the staff members apparently creating fictional accounts for customers, using the customers’ names and, in some cases, even signing their signature inappropriately on these accounts.

“Execution is not just following orders. It’s creating and enhancing the value proposition to the client and getting the ideas from people throughout the organization.”–Harbir Singh

Just think of what leadership means. It means you set the tone, create the mindset. In every company, especially in financial services, you create a climate of integrity. Then within those boundary conditions, you push people to get the job done of expanding the number of accounts at the bank. All companies, financial services and beyond, want to grow and set tough targets, as they should. But then we’ve got to think about as a leader, what’s going to happen when people translate the demand upon them for the end-of-month or end-of-quarter results if we don’t have an ethical climate, a code of ethics, a policy of integrity first. Predictably, with a bit of a shortcoming there in the leadership, people did what you could almost anticipate without having to be inside the company they would do and did do.

Knowledge@Wharton: So, a good strategy would be to take existing customers and sell them additional products, just like with the razor blades. But leadership at Wells Fargo was a big failure.

Useem: It fell short. Yes.

Knowledge@Wharton: Which was costly, we’re now finding out.

Useem: And probably more than we know right now. It’s got a ways to play out.

Knowledge@Wharton: And on the other side?

Singh: Besides Microsoft, with Steve Ballmer’s inspirational leadership but not necessarily the best strategic choices in the new products, look at Daimler and its acquisition of Chrysler. Jürgen Schrempp was a celebrated CEO. He had gained a lot of momentum selling assets that were not related to automobiles. Then he tried to answer the question of the analysts as to what’s the U.S. presence, and where is your mid-sized product?

Daimler had tried for years. Being a strong leader, Schrempp decided, “Let’s go and make a big statement,” and against perhaps a lot of internal debate, bought Chrysler. That turned out to be a leader who was very strong, had a good track record, committing to a transaction that ended up losing a lot of value. It was bought for $37 billion and sold nine years later for$7.5 billion. For a company as successful as Daimler with high-quality management, it’s a very good example of just not servicing the right strategy and not being able to execute.

Useem: I think it’s a great example on this terrain of strategy plus leadership. When the announcement was made that Chrysler would be acquired by Daimler, Jürgen Schrempp at one point publicly said, “For the first time in my life, looking at the pay of the CEO of Chrysler at the time, I’m feeling poor.” That was a statement that the pay structure for European executives is much lower, more modest, compared to Americans. That was the tip of an iceberg….That should have told you something, that the way of life — not just compensation, but the way orders are given, the way people convene a meeting, all in this terrain of leading and acting, — was very different.

Different corporate cultures, in addition to national cultures.

Useem: Different mindset. Harbir is often citing statistics on the amazing rate of failure of even friendly acquisitions. Even though it can look to a strategist at a company that this is going to be a good merger, the failure to look at the leadership piece is, I think, often behind the high rate of failure.

Knowledge@Wharton: The parts are not going to lead to a greater whole without the right leadership.

“As you reach the upper tiers of a company or a big hospital or a community organization, you want people below you to think strategically and to exercise leadership.”–Michael Useem

Singh: I think the important point there, if we look at the dialogue that has taken place in the world of published books on strategy and leadership, they are very segmented. You have books on strategy that are very kind of analytic and conceptual, and there are beautiful strategies that you can get from them. Books on leadership are very much on inspiration and engagement, being part of something larger than yourself. I think the actual integration of the two is extremely important. We discovered in our teaching that we had an audience that wanted to know about both. We wrote the book based on the teaching materials that we developed for that.

Knowledge@Wharton: Would it be correct to say that rather than having some managers who are really good leaders, another group that are really good at strategizing — and having them on a team — it’s better to have them all trained in both things? That leads to my next question: A premise of the book is that these skills can be taught, right?

Useem: If you think about a starting career in business or at any organization, some people are on a strategy team or they’re in strategy consulting. Where at the company, other people might be running an office or a division. Early on, you might be more focused on strategy and all the issues there. But then over here, you may be more concerned with how do you get people to show up at work and not quit? How do you pay them? How do you motivate them to get the job done?

But as people move up into the middle ranks and above, unequivocally, you’ve got to be strategic in thought and you’ve got to lead well, because all those functions now are coming together. We’ve come to feel that we are doing a disservice if we don’t make the argument that, sooner or later, you’re really going to have to become great at both. And we offer a couple avenues for doing that.

Singh: I just wanted to elaborate on the earlier point, which is that depending on your career choice, you’re not going to be in both. You’re going to start typically in operations in some way. Maybe you join a consulting firm. But I think what people have to recognize is that they have to build a larger skill set.

But then, what is that skill set? That’s what this book is about. For example, if you are typically in operations, you should be thinking about, what’s the value proposition to the client? That’s part of your responsibility and your becoming a better strategic leader that way. Also, you need to think about a very crisp statement of strategy. We talk about in the book that strategy statements are often 10, 15 PowerPoint pages. What Carlos Ghosn had was essentially a half-page version, which was these four profit drivers. I think what we’re trying to suggest is that if you are in operations, you need to understand that you really have to have a crisp view of what drives profit in your business and your value proposition.

On the other side, if you’re on strategy or finance or the staff function, you need to think about executable decisions and look ahead to execution. What are the initiatives that best represent these strategies? I think that’s how people can learn because you’re only in one part but you’re trying to prepare for a larger role and be good at both inspiring people, strategizing, and executing.

“Take a job that requires both a leadership skill set and an ability to think strategically.”–Michael Useem

Knowledge@Wharton: So, stretch yourself all along during your career.

Singh: Yes, from early in your career. Learn from peers. Learn from people who you can learn from as mentors.

Useem: Here are the three avenues that we emphasize, that are pretty obvious as soon as I say them. But to get to them, we describe a young manager named John Chambers who had worked with a company that a lot of people don’t even remember, Wang Instruments, which was there in the early days of the digital revolution. It was a huge success, but it did a total belly flop and went out of business after a couple years of extraordinary growth. John Chambers lost his job. He was on the street. He said, “You know, I’ve got a better appreciation now for why a company really has to know where it’s going, where the market’s changing, where all the value-added propositions are going to be, when possibly all these disruptive technologies are coming along. I’ve got to have a workforce that’s ready to change quickly, agilely.”

Wang apparently had neither of those capacities. John Chambers was hired by Cisco, became chief executive and ran Cisco for 20 years. We talked to him, and he said that the three avenues are critical not only for him but for combining those two functions that Harbir just described.

First, study it. Pick up the book Execution. Take a course — an online course, maybe a mid-career course — that has strategy and leadership combined or at least as part of the general program. Read about it, think about it, watch people come and go.

No. 2 is find coaches and mentors. Back in 2000, 2001, when the Internet had a big hiccup and seemed to get itself into a lot of trouble, the famous GE chief executive Jack Welsh called John Chambers and said, “John, did you learn anything?” And Chambers said, “Well, it’s been a hellish experience.” Welsh said, “Think what you’ve gone through and don’t let that happen again. Because you went through it, you’re probably not going to let that happen again.”As that market changed hugely over 20 years, making connectors and switches and all of the hardware that drives the Internet, Chambers has repeatedly had to learn how to lead by literally doing it. He concluded, for example, that a lot of ideas were down there in the engineering ranks and just weren’t getting up to those who made the final sign-off on whether to go with them. He radically restructured how decisions were made in Cisco because he looked around and said, “We’ve got a better way to do it. Let’s go with it.”

No. 3 is just get out there. Put up your hand. Take a job that requires both a leadership skill set and an ability to think strategically.