Global business adviser Ram Charan says business leaders need to step up to uncertainty – and brush up on their maths.
“The issue facing business leaders in 2015,” says Professor Ram Charan, “is not how to cope with change. It is about how to anticipate changes coming down the track, understand their implications before competitors, and utilise them to improve your market position and profitability.”
Born in India but now unremittingly global, Charan specialises in giving personal advice to CEOs. Fortune magazine dubbed him “the most influential consultant alive”. For years he led such a hotel-based life that he had no home at all. He has now bought an apartment in Dallas, but still lives out of a suitcase.
He has worked with leaders at GE, News Corporation, P&G (Procter & Gamble) and Wipro. But he sees himself as a practical adviser rather than a big-picture theoriser, asking shrewd questions about the specifics of his clients’ businesses. Not for nothing did he write a best-selling book, Execution, about “getting things done". While many consultancy businesses slid after the global financial crisis, Charan stayed heavily booked helping clients deal with the downturn.
A world of uncertainty
Charan first learned about business working in the family shoe shop in a small town in northern India. He studied engineering in India and Australia before doing an MBA and PhD at Harvard. He taught at Harvard Business School and Northwestern University, then moved into consulting. His most recent book, The Attacker’s Advantage: Turning uncertainty into breakthrough opportunities follows Leadership in the Era of Economic Uncertainty and – perhaps his most famous release – Execution: The discipline of getting things done, with Larry Bossidy.
Charan sees The Attacker’s Advantage as a departure from his previous work. Up to now, he says, much management thinking has been about how to do better what you have always done. But, he says, this isn’t enough in a hyper-competitive, big data world.
“Many people in business see uncertainty as something to fear, but it is not,” he told INTHEBLACK during a recent visit to Australia. “You can discover possibilities for creating something new and immensely valuable. The more you practise the skills to deal with it – and it should be seen as a set of skills – the more self-confidence you will develop and the better prepared you will be to lead. Taking control of uncertainty is the fundamental leadership challenge of our time.”
Charan does not speak from an arm’s-length perspective. He has provided advice to hundreds of business leaders. Although now in the US, he understands both Western economies and what is happening in developing countries.
While uncertainty has always existed, Charan says what is new is the level of structural uncertainty, which can explode existing market spaces and put whole industries at risk. It demands new skills for anticipating events.
“More than ever, business is about ideas, about innovations and intellectual property, and also about social change,” Charan insists. “One way to build understanding of what is happening in the ideas end of your industry is to watch patent filings. Patents have long been considered an esoteric legal issue, but they can be a key source of market intelligence.
“For example, Nokia was taken by surprise when Apple launched the iPhone – but it shouldn’t have been. Some people at Nokia had even seen Apple’s patent filings, but when the information was put to the leadership team they responded that a computer company would not go into the phone business. We know what happened then.” Nokia, once the mobile phone industry leader, sold its shrinking handset business to Microsoft in 2014.
Rise of the maths houses
A critical area of change, says Charan, is the advance of mathematical tools – algorithms – and their related sophisticated software. They can deconstruct huge amounts of information, and predict patterns and changes in everything from consumer behaviour to the maintenance requirements of machinery.
“Companies that have the new mathematical capabilities – I called them maths houses – possess a huge advantage,” Charan says. “Google, Facebook and Amazon were created as mathematical corporations, communicating with their customers through mathematical systems. The US is leading this field, with China next and then India.
“The advantage for maths houses is that they can deal directly with buyers, without intermediaries, and can personalise the customer’s experience. For the corporation, this means a much flatter organisation, with a lot of middle management jobs simply disappearing. It also requires a rethinking of performance metrics, to measure collaboration across silos, geographies, time zones and cultures.”
"Taking control of uncertainty is the fundamental leadership challenge of our time."
The upshot is that corporate managers must make algorithms part of their professional vocabulary. It’s a complex discipline, but in the US several business schools offer increasingly popular short courses to acquaint managers with the concepts and language of algorithms.
This new mindset for success involves what Charan calls “perceptual acuity” – a 360-degree view of the world. Changes of government, new moves by regulatory authorities and technological shifts all have an impact. Changes in one area can quickly migrate to others, so corporate leaders need to recognise announcements that strike a public chord.
“Look for the larger significance of anomalies, contradictions and oddities,” advises Charan. “Train yourself to stand back from your business. Test your perceptions by talking with other people … People with different cognitive bandwidths help you see the world through different lenses.”
Equally useful is harnessing third parties to gather information from across the globe on critical topics. This can make spotting anomalies and disrupting patterns that bit simpler. Indian company Tata Communications has institutionalised the process of looking for sources of disruptive change, says Charan, with senior executives regularly sent on retreats to strategise for the future.
Identifying new prospects should be a key part of an executive’s responsibilities, but too often managers are buried under the daily responsibilities of improving operations, managing finance and looking for incremental efficiency gains. They have no time for the big picture.
This has to change, insists Charan. Coming up with ideas to take a business forward should be considered a core skill, and more important than some traditional administrative duties. It should be an essential criterion for senior appointments, with a particular emphasis on a candidate’s breadth of knowledge and vision.
Business leaders could also use what he calls the Joint Practice Session (JPS). This is a regular meeting of senior people, maybe once a week, and perhaps involving the CEO and their direct reports. The group’s crucial role is to make decisions about the path ahead and to design a change program. It’s a forum to discuss emerging issues and ideas, even if they do not appear immediately relevant.
Most of all, the JPS has to be ready to move away from the company’s core competencies if they anticipate a structural shift in the external environment. If a change program is set in progress, the JPS should establish short-term milestones as well as a long-term goal. Putting funds aside to help the company through a period of change is a useful step.
“It is up to the CEO to ensure that the JPS process does not become just another meeting,” Charan says. “Equally, the CEO has the key role in explaining to stakeholders why the company is moving and where they are going. They have to explain that it will not be done overnight, or in a quarter or in a year.
“This can be difficult if there are activist shareholders who demand immediate dividend returns, and media commentators who look only at short-term figures. But it can be done … In my experience, most investors are willing to listen to reasoned arguments, especially if the alternative is to see their company being overtaken by faster, more aggressive competitors.”
Charan acknowledges that developing an “attacking” mindset isn’t easy. It requires moving with speed even when some variables are still uncertain. It can also mean letting go of skills that may have been a significant part of how you see yourself.
He suggests this useful test for executives – ask yourself, at least four times a year: What new developments can I take advantage of to create a new need or give the customer a more compelling experience? What is out there that I need to know about?
"More than ever, business is about innovations and intellectual property - and also about social change."
“Yes, it takes courage,” he says. “Going into new territory is always a bit scary. But this is the environment we live in now: a globalised economy that moves so fast that incremental change and ‘business as usual’ is not an option. The question that every CEO and senior manager has to ask of themselves is: am I in tune with the wider external environment? If you can’t honestly say you are, then you have to start to find a way there.”
Ram Charan’s executive test:
Ask yourself, at least four times a year:
What new developments can I take advantage of to create a new need or give the customer a more compelling experience? What is out there that I need to know about?
This article is from the May 2015 issue of INTHEBLACK.
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