Copyright: 2007
Publisher: Crown Business
ISBN: 978-0-307-34151-8
Ram Charan is a fascinating business consultant with decades of experience dispensing advice to the leaders of many of the world's largest and most influential companies. I recently added this book to my personal collection and was excited to get the opportunity to read it. While the book is geared towards CEO's and other high level management types, there is plenty of advice in the book for anyone who wants to understand how to be more effective in the business world.
Personal History
Early in the book Ram provides some intriguing insight into his own past. He relates how his initial business experience was at the family shoe shop in India. The small business world of constant attention to cash flow forced him to pay attention to the customers' preferences and trends. He received an engineering degree in India and then left for Australia to work in a large company. By chance he happened to be invited into an executive's office to discuss the company. During this conversation he asked a question that had been fomenting for some time, "was the company borrowing money to pay the shareholder dividend?" This question, coming from a 20 year old draftsman took the executive off guard but he checked into it with the CFO. Ram had been reading the annual reports and his attention to cash flow had led him to the correct conclusion. This incident opened the door to many more discussions over the next four years which provided him with an invaluable "hands on" education in the world of business. Ultimately he decided to leave engineering and pursue a business degree at Harvard and never looked back.
Personal Traits vs. Know-How
Many of the things that we associate with strong leadership are actually personality traits. While these traits are very important, the true indication of leadership lies in being able to combine these traits with what Ram calls "know-hows". The personality traits that Ram details and some of the pitfalls and dangerous combinations are:
- Ambition -- The desire to achieve something visible and noteworthy. [Overambition combined with lack of integrity can lead to unscrupulous behavior]
- Drive and Tenacity -- Having an inner motor and high energy to get to the heart of issues. [Drive and tenacity can cause a leader to stick to a plan that isn't working or to stand by outdated assumptions]
- Self-Confidence -- Listening to your inner voice in the lonely times when you need to make a bold decision. [The need to be liked and the fear of a response can cause a lack of self-confidence. Self-confidence affects your use and abuse of power]
- Psychological Openness -- The willingness to allow yourself to be influenced by other people and to share your ideas. [Being psychologically closed makes it difficult to reposition a business or accept new realities]
- Realism -- The mid-point between pessimism and optimism. Spending time with customers to get a feel for the situation can result in realism. [Pessimism refuse to listen to ambitious plans while and optimist refuses to deal with negative situations.]
- Appetite for learning -- Seeking out new experiences and learning from them enhances the ability to take advantage of the "know-hows".
Cognitive Traits
A wide range of altitudes - transition from the conceptual to the specific
A broad cognitive bandwidth - take a broad range of input and see the big picture
Ability to reframe - see things from different perspectives
Repositioning
The first of the Know-Hows that Ram covers is Repositioning the Business. He contends that in today's market, a company may have to reposition itself several times as market forces change the money-making capacity of the business plan. While the formula for making money itself does not change, how a company is positioned within that formula can change radically.
For example Blockbuster video has experienced quite a few market changes in the last fifteen years or so. Prior to the mid-90's the business model was simple, buy the videos from the studios before people could buy them and then rent them out at a high margin (42 percent in 1994.) The landscape changed however when the movie studios started releasing them for sale to the public at the same time as they were available to Blockbuster. More people began simply buying the movies than renting them. Blockbuster repositioned itself as a retailer of movies... emphasizing the selling rather than renting of movies. This helped, however the margins on selling vs. renting were considerably smaller (28 percent in 1995.)
Another change in the landscape was when Blockbuster worked out a deal to share rental profits with the studios in exchange for lower prices on purchasing. This gave them a competitive advantage by having more copies of the new releases on the shelves without huge cash investments. Then the on-line distribution of video as well as the mail distribution network of Netflix changed the game again. Once again, Blockbuster has had to change and rechange it's positioning in the industry in order to maintain the money-making proposition. Through all of this, the basic formula hasn't changed: buy a product from a producer and resell it at a profit. The positioning has been about the best way of fulfilling this basic concept.
Pinpointing External Change
A skill that is necessary for knowing when and how to reposition your business is being able to "connect the dots by pinpointing and taking action on emerging patterns of external change." The ability to look at your company from the outside in is crucial to being able to see what position you are currently in with regard to the market. Viewing the market only through the lens of your own organization will not give you a clear picture of the market as a whole and you will be unable to detect subtle shifts early enough to be able to react to them.
There are seven questions that Ram proposes to help sort through and detect patterns:
- What is happening in the world today?
- What part of my frame of reference has worked for me? What part hasn't?
- What does it mean for anyone? (Consider all stakeholders, including human resources)
- What does it mean for us?
- What would have to happen in order for a course of action to be effective?
- What do we have to do to play a role?
- What do we do next?
Herding Cats
Ram devotes a good deal of the book to dealing with the social side of leadership. While cutting the right deal and making good financial decisions will always be important in business leadership, the ability to develop individuals, mold teams and manage external perceptions are becoming increasingly important qualities for a leader to have.
Ram refers to the ubiquitous "meeting" as an "operating mechanism" ,a euphemism with purpose. Not only has the term "meeting" become associated with so much wasted time (think: Dilbert) but the term doesn't entirely contain all of the mechanisms that are necessary to building a good social system in your business. Certainly regularly schedules off-site retreats or conference trips etc count as "operating mechanisms" but do not fit the word "meeting".
The reason many operating mechanisms don't effectively serve their purpose is that they are convened without a purpose! Before calling a meeting you should determine what the outcome should be. Are you generating ideas? Coming to a decision? Gathering information? Once you know the desired outcome, you need to ensure that the right people are present to have that outcome. If a decision needs to be made, get all the silo keepers in the room together so you don't have to "get with marketing" before the decision is made. If you are generating ideas, don't invite the negative influences who point out the flaws in every idea. Managing the operating mechanims becomes an exercise in managing a social entity.
Building Leaders
A large portion of the book is devoted to developing leadership in your direct reports. As someone who doesn't HAVE any direct reports I read the material with the academic interest that I have always had in leadership principles. The section on building a team of leaders however caught my attention with some concepts that can be applied to any team, not just a team of leaders:
- Confront behaviors that harm the team's effectiveness
- Anticipate, Surface and Resolve conflicts
- Pick the right people
- Provide prompt feedback and coaching
- Recognize and avoid derailers
Goals and Priorities
"Goals are the destination you want to take your business to."
"Priorities are the pathway for accomplishing goals."
Setting goals requires a great cognitive bandwidth to be able to understand what is desirable and achievable in a company. It requires the recognition that setting a goal might focus people's energy on the wrong aspect of a business unintentionally. Understanding the second and third order consequences of a goal is important to ensure that the right goal is set.
Once the goal is set however, creating priorities determines asset allocation and what people should focus on. If no priorities are set, people will try to do everything and will accomplish nothing. If the wrong priorities are set, they will conflict with the goals that have been established and the goals will not be met.
The Eight Know-Hows
- Positioning and repositioning
- Pinpointing external change
- Leading the social system
- Judging people
- Molding a team
- Setting goals
- Setting laser-sharp priorities
- Dealing with forces beyond the market
Conclusion
I enjoyed this book very much. If you are expecting a dry thesis on business fundamentals you will not find it here. This book combines a variety of writing styles (monologue, conversation, exposition etc) with a depth of insight that is incomparable. The deep understanding of financial mechanisms along with an intuitive understanding of the power of interpersonal relationships creates a unique blend of insight into the "know-how" of business.