Leadership in the Era of Economic Uncertainty

Managing in a Downturn

by Ram Charan

Number of pages: 160

Publisher: McGraw-Hill Education

BBB Library: Leadership

ISBN: 9780071626163



About the Author

Ram Charan is a business advisor and public speaker. He is a graduate of Harvard Business School, where he earned MBA and doctorate degrees.

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Editorial Review

The economic peace of the past generation is over. We’re in a war for survival, beset by fear, uncertainty and doubt. As on any battlefield, conditions demand a seriously different kind of leadership from that which is appropriate in peacetime. Leaders must be prepared to make strategic, structural, financial and operational changes—many of them drastic—in a hurry and with information that is at best incomplete. Whether you lead a small group of people, a whole business unit or company, you cannot let yourself be afraid of what is yet to come. So, can you be the leader who figures out what has to be done and makes sure it happens, who finds opportunities in chaos, and whose confidence is contagious?

Book Reviews

"Authenticity is always important but now it’s absolutely critical. Leaders, wherever they sit in the organization, have to demonstrate rock-solid integrity, honesty, and the ability to confront reality. The way to inspire courage and optimism in your employees is by mapping a credible path forward. If you soft-pedal bad news, they won’t trust you. Worse, they’ll miss the urgency of the situation and won’t follow you." Harvard Business Review

"The immediate and most pressing challenge for a CEO today is to act quickly and decisively, and to prepare for the worst-possible scenario. It’s reasonable to think that if you conscientiously prepare for the worst, chances are that you will encounter something less bad than that and come out ahead when it’s all over. If you don’t prepare for the worst you will put your company and career at risk." Ivey Business Journal

"Ram Charan explains that he kept this book short and to the point because managers’ time is precious. The abiding themes threaded through each page are of the need for decisive action, boldness tempered by realism, and a constant eye for opportunity even in these times of hardship. This will be achieved by a level of management intensity that penetrates the day-to-day operation of a business to a level rarely seen before. 'Roll up your sleeves and put the tools and ideas to work right away,' he says. 'Remember ‘hands on, head in’ is the guiding principle. Adjust your mindset, gather your people and tackle the problem squarely. If you’re a capable leader you will have a stronger business after the downturn than you did before.'" Gulyani.com

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Wisdom to Share

The most critical metric now is cash. Pursuit of revenue growth must give way to understanding the cash implications of everything your company does.

Some CEOs are telling their people that they should go for market share against competitors whose conditions could be unraveling. You should pursue that kind of growth only if it is profitable and cash-efficient.

Cash efficiency means that gains in market share do not consume disproportionate amounts of cash in the form of more inventory, extended duration of accounts receivable, or increased complexity. The cash efficiency of new market share is extremely important.

Necessity for cost reduction and liquidity to reshape and refocus the business puts you on the offensive. It turns a bad situation into an opportunity to build a company that will emerge from the storm stronger, better, more flexible, and better positioned than the competition.

Many leaders will have to make a huge change in how they manage day-to-day. Succeeding in a volatile environment requires frequent adjustments at the operational level of the business as well as an occasional disruptive shift.

Every leader has to be involved, visible, and in daily communication. Your new guiding principle must be this: Hands on, Head in.

If you’ve been monitoring capacity versus actual production quarterly, for example, you may want to do it monthly. This will give you the agility to make modifications as conditions change.

As a leader, staying in close touch with your people and digging into the numbers more often will help you pick up early warning signals that your strategy, business model, tactics, or execution is not working.

Projects that once were evaluated on the basis of their return on investment now must be judged in terms of how much cash they consume and can generate and how soon they can bring in cash.

Your authority derives from your ability to facilitate understanding and solutions. Level with people: tell them how you see the world, acknowledge the limits of your understanding, and ask them for their own views. Doing this may take courage, but together you can piece better probabilities than any one person can.

In this volatile environment, reality is a moving target. You have to keep updating your picture of it, continuously impending change through ground-level intelligence.

Focus your people on a vision of what is possible, and energize them to search for the actions that will realize the vision. This is where leadership becomes a performing art, introducing that touch of optimism that taps psychological reserves to deal with bad news and transform fear into action.

Facing the necessity of conserving cash and surviving in the short run, you may feel pressured to shortchange the future. Resist this pressure.

The kind of flexibility you need requires that all your people with input to the budget be able to sit down together to create it in a matter of days and then revisit and revise it monthly. Reducing the number of line items will simplify the process.

The ultimate test of real leaders is that they leave their units and companies in better shape than when they took over.

As a CEO, you need to have a finger on the pulse of the external environment, seek input from other people about what is happening, and develop a point of view about it, always seeking a way to emerge stronger in the aftermath of the slowdown.

Investors need reassurance and explanations about how the company is meeting the challenges and reshaping itself for the future.

As the CEO, you must be sure you have trusted subordinates who, within the parameters in which they can make decisions, are able to do so quickly and skillfully. But you must interact with those subordinates much more frequently, so that there are no slipups in execution.

Every senior manager must have both the skills and the psychology to cope with hard conditions and remain optimistic and focused on the future.

As the CEO, you have two major responsibilities that must be met through communication: information flow and motivation.

What you need to understand about communication is that the message, whether informational or motivational, seldom is heard the first time. It is essential to repeat it time and again to be sure everyone gets it.

Motivating the entire organization is a different kind of communications challenge. You need to align everyone with the company’s goal of preparing for the worst and looking toward long-term success.

You need to be listening to your people at every level to discover what is on their minds, what they are worried about, and what new ideas they have for doing something better.

Pay special attention to the people who are interacting with customers, partners or suppliers. They will not only have important intelligence and insights but also will be affected by the psychology of the people they deal with frequently.

You want the people who are interacting with customers, partners or suppliers to be upbeat and optimistic to send the message that your company is focused on the future and intends to be a winner.

It is critical that you have a firm picture of the company’s financial position on a real-time basis. Cash flow should be tracked daily; inventory, margins and receivables should be updated weekly, with their interrelationship with one another analyzed to reveal evolving patterns of change.

Setting up a process now to do budgeting more frequently to adjust resources and get it done quickly will pay huge dividends in the future because it will give you more flexibility.

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Know-how

Although personal traits are important in making successful leaders, it is the know-how that separates those who build long-term values from those who hit short-term targets. Personal characteristics do not guarantee sound judgment or realistic vision, and their values are greatly diminished without the know-hows that could be learned and developed

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