The two most powerful writers we know on the subject of purpose, Gurnek Bains (Meaning, Inc.) and Nikos Mourkogiannis (Purpose, Palgrave Macmillan, 2006), both make the same basic point: Strategic leaders don’t simply invent an organization’s purpose in a vacuum. They draw forth a purpose that resonates with the values and capabilities of its people, and with the nature of its existing business. Thus, according to Bains, the Virgin Group succeeds because it exists to continually meet fresh challenges. In 2005, when CEO Sir Richard Branson announced the formation of Virgin Galactic, with plans to offer orbital space flights to paying customers, it let his employees and customers know that they could be part of an audacious, risk-taking, history-making enterprise for the rest of their careers. Similarly, according to Mourkogiannis, BMW has always attracted both customers and employees because it embodies excellence. To be sure, it makes a handsome profit, but first and foremost it makes beautiful cars.
Most executives recognize that significant change takes place through action. And the familiar way to achieve this is through strategic initiatives: launching a product, changing a practice, or staking out a market position. Unfortunately, that often seems to mean “the more action, the better,” especially when each potential initiative, product launch, or improvement campaign has its own advocates within the company.
This is the path to exhaustion. All too often, the strategic initiatives lack a clear connection to the organization’s purpose; therefore, their relevance is uncertain and they generate little excitement. People comply in the sense of “checking off a box,” but the desired result is never realized.
A more effective approach to strategic initiatives starts by considering purpose. What is this company here for? To discover new things? To dominate its niche? To serve others? To operate in a globally responsible manner? Once the answer is articulated, leaders can frame a campaign: a sequence of high-priority campaigns that reinforce one another and that people throughout the enterprise feel comfortable with, even if those actions represent a dramatic shift in direction.
When Carlos Ghosn came to Nissan in 1999, the company was moribund. Ranked as the number-three auto manufacturer in its region, it was suffering from $30 billion in debt and was viewed as inefficient and sluggish on product development. Ghosn almost immediately began to articulate a purpose: The combined Nissan–Renault company would become a new kind of automobile company, a “global alliance” (as he put it) that was truly multicultural, and better positioned than any other company to bring automobiles to every part of the world. Neither Nissan nor Renault had the capabilities to achieve this purpose at the time. Ghosn set a three-part program in motion to bring Nissan to the point where it could fulfill its part.
Ghosn began the first phase, a cost-cutting strategic initiative called the Nissan Revival Plan, by announcing a set of audacious goals: Nissan would raise the ratio of operating income to sales margin to 4.5 percent and reduce consolidated debt to less than ¥700 billion (US$6 billion) by 2002. The automaker achieved those aims a year ahead of schedule. The second campaign, which started in 2002 and was called Plan 180, set new five-year goals of zero debt, a million-car sales increase, and 8 percent return on sales; Nissan achieved each within three years. By late 2007, the company had cash reserves of $165 billion, and was midway through its third initiative, christened Value Up, with the goal of achieving 20 percent return on invested capital, in part through renewed emphasis on innovative products. Each campaign has helped build the capabilities needed for the next one. And although Value Up is behind schedule, the complexity of the challenges facing Ghosn’s alliance has increased, and his success is uncertain, the revival remains the only successful automobile company turnaround since the 1980s.