Customer Reviews

Leadership in the Era of Economic Uncertainty: Managing in a Downturn

5 star:		(10)
4 star:		(7)
3 star:		(1)
2 star:		(3)
1 star:		(0)

 

 

Ram Charan's Leadership in an Era of Economic Uncertainty (LEEU) is a playbook for senior executives to get back to the basics in these tough economic times. Charan is the first author to take a serious look at what running a company will be like under the assumption that the economy will not recover in the short run, but rather what you will need to be effective over the next two to three years.

In this regard, it is an excellent book with clear guidance, well written and focused on the basics. It's a 125-page primer for executives to remind them what it means to manage in tough times. Based on that strength it's a five star review - but there are some serious omissions that limit the completeness of the playbook - hence the missing pages in operations and IT.

THE MAJOR WEAKNESS IS that this book treats leadership as financial leadership paying ALMOST NO ATTENTION TO LEADING OPERATIONALLY or the the changes necessary to acheive and extend operational and cash performance. That is the reason for the two stars, as its a good book on the financial dimension, but just following that financial advice may lead companies into strategic and operational dead ends.

CEO's and CFO's will like this book. Other executives, particularly COO's, BU leaders and CIOs should read the book and supplement it with their operational plans to achieve and sustain operational improvements - the big gap in this book.

Charan gives clear advice that is free from pontification or opinion. You get the feeling that you are sitting across the table from an executive that is giving you clear guidance and a tough message that you need to pay attention to. Couple this book with Kotter's "A Sense of Urgency" to know how to manage the change all companies face.

However, there are two major weaknesses in the book.

First is the lack of discussion regarding the use of information, technology and communications to drive operational performance. This is surprising given that many of the recommendations in the book require technology to execute them properly. In fact the collaboration, performance reporting, supplier coordination, customer intelligence are more expensive and less powerful if they are not supported by effective information and technology. Charan's excellent discussion in other areas and the four paragraphs he dedicates to IT give executives the impression that they can get by without good information or effective IT. Leading companies know that this is not possible and while IT cannot be a cash or capital black hole, effective enterprises have effective IT.

Second, reading between the lines you get the sense that Charan sees leadership in this environment in terms of the CEO/CFO and everyone else. The treatment of the other executives and the employees in the book puts the CEO and CFO against everyone else. This is subtle but clear throughout the book. The bias is expressed in terms of the number of pages dedicated to each role CEO/CFO get 20 while 8 for each other role. Only the CFO gets a section that describes their role to the CEO. Every other role is described in terms of a focus on finances, cash and cutting costs with little treatment of operations. Now the CEO and CFO are important roles, but they are not the only ones required to get results. The omission of IT and the Charan's light treatment of operational considerations are unfortunate from the co-author of Execution.

Overall it's still a good book to read, but it's not a complete playbook. Here are a review of the overall strengths, challenges and each of the role/chapter discussions.


Strengths:

Concentrating on the importance of cash flow and cash generation. This is the first third of the book and Charan puts the issues of cash clearly on the table.

Recognizing that the post uncertainty world will be different than the world we knew and the world we are managing through.

Recognizing that the company is a system and that managing it for one dimension, even cash, can have unintended consequences.

Strong advice on how CEOs should lead in this environment and their need for getting their "hands on, heads in" the business.


Challenges

The book is a neo-classical view on management with little to no consideration of how to use information, technology or communications to restructure the company and better match resources to revenues. The advice in LEEU was applicable back in the 1950's as much as it is today, despite the fact that technology and the economy have changed.

The focus is on finance more than on the operations that drive finance. In my experience operational data is a leading indicator of what is happening, and Charan recognizes this, yet his focus is on managing from a finance perspective, which is a lagging indicator of what has happened.

The lack of serious consideration given to information and information technology, particularly given the need to make companies more flexible, respond to changes in the market.

The driving concern on cost to the point that Charan's advice on how to deal with a tough economy can become a self fulfilling prophesy. From page 42, "The objective is to cut costs before revenues decline and to get ahead of the curve. Timing and speed matter." Such a management philosophy was part of the recipe for the Great Depression. Few people have cut their way to greatness, and there could be more on the customer service, growth and other issues discussed in the book.

ROLE/CHAPTER REVIEW

The book is organized into sections based on each of the major roles played on the executive team. This is a unique way of looking at the issues and I would recommend reading all the roles. This "you" frequently used in the text refers to you as CEO, CFO, BU executive among others. The sections and highlights include:

Corporate Crisis - how DuPont recognized and reacted to the economy

The Challenge of Managing in a Toxic Environment - the best 20 pages on what to do in this environment including the six essential leadership traits for hard times:

- Honesty and Credibility
- The ability to inspire
- Real-time connection with reality
- Realism tempered with optimism
- Managing with intensity
- Boldness in building for the future

At the Helm - the CEO - concentrates on the need for CEOs to become more engaged in the company, the fact that you are leading in an environment of uncertainly and volatility, the need to face up to that and the fact that the future will not be an extension of the past. Charan points out that understanding operational data is more important and critical than getting the financials. The tool for CEOs is the "cash breakeven point" which has changed for every company.

On the Front Lines - Sales and Marketing - concentrates on the need to maintain a focus on generating revenues and the fact that those revenues will be harder to come by in the future. Charan reminds us that there is a need to keep the sales force motivated, engaged and with the customer so we can all understand what is going on. The tool for Sales and Marketing professionals is constant communication with the field and Marketing ROI.

Mind over Money - the CFO - this section concentrates on issues of cash, cost and the CFO's role in leading in these areas. While frequent budgeting and cash flow analysis are the CFO's tools, Charan positions the CFO as the advisor of last resort to the CEO. I think that this is unfortunate as it basically says that all decisions are finance driven and it sets the operational executives who deliver the results in a pejorative position. Particularly the COO and the CIO who are often the executives in the best position to effect and sustain operational change.

Making it all work - Operations recognizes that operations is at the heart of the company. The tool is restructuring operations to cut capacity to meet demand. Here on page 78 Charan points out that the enterprise is a system and cuts in some areas can create havoc in others. It would have been nice for him to provide similar advice to the CFO.

Refocusing Innovation - Research and Development is a variation on the theme of resource reduction, concentrating on the choices that will pay off and support the enterprise. Their tools? Zero based budgeting for R&D projects and an active "end of life" focus on R&D projects. Charan points to the use of offshore resources as a way of cutting R&D expense but maintaining R&D capacity.

Tying it all together - the supply chain recognizes the importance of these operational processes to cash flow. Here the tool is synchronizing activities across the supply chain, a good thing. A better thing would have been a discussion of how you reduce the unit of work within the supply chain (from say a truck of product to a case) to improve its flexibility and responsiveness.

Supporting the team - the staff functions has some good material and some real gaps. The normal coverage of HR, Legal, IR and IT are contained in here. This is disappointing as this treatment does not reflect the role of IT in the core of operations - a real gap as leaders are using information in new ways to preserve cash. I am particularly taken a back by Charan's binary description of leaders versus individual contributors (page 104) as it seems in this world you are either one or the other. BTW individuals are to be pushed out of the company as they do not have `specific budgets supporting them" This is unfortunate in that individuals doing their jobs well drive the changes in operations, not the managers who oversee the work. This is a surprising gap in the book.

The view from the top - the board of directors exercise their responsibility for the shareholders through a combination of strong oversight, realistic goal setting, and risk management.

I have read and reviewed all of Ram Charan's previously published books and was thus eager to read this one in which he shares his thoughts about how to follow "the new rules for getting the right things done in difficult times." Although the rules he discusses are hardly "new," these are indeed difficult times and require decision-makers in all organizations (regardless of size or nature) to provide effective leadership. More specifically, leadership that is honest and credible because it is authentic (i.e. transparent, visible, and consistent), inspires others, is connected with reality in real time, realistic tempered with (cautious) optimism, hands-on "in the foxhole," and bold while in pursuit of what Jim Collins characterizes as a "BHAG" (i.e. big hairy audacious goal). According to Charan, "being a leader in tough and uncertain times means always anticipating the next challenge and building the fortitude and skills to face it."

Easier said than done? Of course. In fact, developing a new mindset may be the single greatest challenge that C-level executives (especially CEOs) now face. "The new reality is that barring acquisitions, your company will be smaller two years from now than it is today." Therefore, success in what will continue to be a volatile business environment "requires frequent adjustments at the operational level of the business as well as an occasional disruptive shift. It demands what I call [begin italics] management intensity [end italics]: a deep immersion in the operational details of the business and the outside world combined with hands-on involvement and followthrough." As I suggested earlier, Charan offers no head-snapping revelations, nor does he make any such claim. He is a world-class empiricist and pragmatist with highly developed street smarts who helps executives to understand what works, what doesn't, and why. Everything he recommends is common sense. The business world he now surveys, however, is quite different from the one he surveyed when writing The Leadership Pipeline: How to Build the Leadership-Powered Company. The advice he offers in Leadership in the Era of Economic Uncertainty is essentially the same as it has been since then (2000) but with one great difference: There is no longer any margin for error. "You must dig into the right details with much higher frequency than ever before."

To paraphrase Thomas Paine, "These are the times that try CEOs' souls." The realities they must recognize and to which they must then respond are more numerous and more perilous than ever before. In a previously published book, Know-How, Charan discusses the eight skills that separate people who perform from those who don't:

1. "Positioning (and when necessary, repositioning) your business by zeroing in on the central idea that meets customer needs and makes money;
2. Connecting the dots by pinpointing patterns of external change ahead of others;
3. Shaping the way people work together by leading the social system of your business;
4. Judging people by getting to the truth of a person;
5. Molding high-energy, high-powered, high-ego people into a working team of leaders in which they equal more than the sum of their parts;
6. Knowing the destination where you want to take your business by developing goals that balance what the business can become with what it can realistically achieve;
7. Setting laser-sharp priorities that become the road map for meeting your goals; and
8. Dealing creatively and positively with societal pressures that go beyond the economic value creation activities of your business."

All of these skills are needed when accommodating "the new rules for getting things done in difficult times." Board members, C-level executives, and heads of departments all need "know-how" but they also need "know-what." I agree with Peter Drucker that "There is surely nothing quite so useless as doing with great efficiency what should not be done at all" and with Michael Porter that "The essence of strategy is choosing what not to do." Leaders must also be effective communicators so that everyone involved knows what their organization's goals are and understands why those goals must be achieved. Charan cites Chad Holliday, CEO of DuPont, as an example of a leader who answered the call when realizing that a global economic crisis was imminent. "He stared into the face of uncertainty and accepted the change he saw coming. Neither fear nor uncertainty paralyzed him. He took charge, pulled people together, and took decisive action. This is what every leader must do now."

Only 127 pages, this is Charan's shortest book. It is also, in my opinion, his most valuable book thus far because it offers both a call to action and a wealth of sound advice about what to do as well as what not to do, how to do what must be done, and why "hands on, head in" is the guiding principle. "Adjust your mindset, gather your people, and tackle the problems squarely" As noted earlier, Charan aserts that "being a leader in tough and uncertain times means anticipating the next challenge and building the fortitude and skills to face it." With all due respect to CEOs such as Chad Holliday, an organization's success will ultimately depend upon having effective leaders at all levels and in all areas. In this context, presumably Ram Charan agrees with me that this brief excerpt from Lao-Tzu's Tao Te Ching provides an appropriate conclusion to my review of Charan's latest book:

"Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves."

While there is some good advice in this book, most of it is generic and applies in good times as bad. The one key new directive is to focus on cash more than anything else. This follows clearly if one understands the business fundamentals presented in the author's book What the CEO Wants You to Know : How Your Company Really Works. Since credit is tighter, and most companies' financials will look worse with declining revenues, getting cash externally will be much more difficult. The best solution is to work to avoid needing external cash.

Another new suggestion is to accept the greater uncertainty by revising budgets more frequently. By doing so, companies can react more quickly and also keep goals more realistic. With (unchanging) annual budgets in a very uncertain world, a month or two into the year, the budget may already be impossible, or met, if a turnaround happens sooner than expected. Either way, persisting with a grossly unrealistic budget for most of a year is not a good idea.

Unfortunately these two solid ideas and a little fluff (advice applicable anytime) does not make for compelling book.

Whilst the sub title of "Leadership In The Era Of Economic Uncertainty" reads "The New Rules for Getting the Right Things Done in Difficult Times", it is more a narrative by the author Ram Charan than "rules" per se. None-the-less, the narrative is effective, well directed and most pertinent to today's business leaders. Written in the first person, it could at times be likened to lecturing - this should not be taken as a criticism as once one gets used to the author's style it in fact becomes quite evocative.

Although Charan does not say so, this is a book for CEOs and the senior management of organisations. For instance. it has specific chapters for the CEO and the Heads of Sales & Marketing, Finance, Operations, R & D, the Supply Chain and the Staff Functions. There is even a chapter for the Board. Each chapter has key actions that leaders in each of these areas can apply. Because of the writer's style, a summary of the key points at the end of each chapter would have been useful to aid memory and assist implementation.

If you are looking for an understanding of the principles that underpin organisational success, this book has the answers. For example, in the chapter for Chief Financial Officers, the writer describes two types of CFOs. One type are those who look outwardly toward investors and make sure the company's debt ratings, price/earnings ratio and financing/refinancing of debt structure are adequate and appropriate. The second type of CFOs are those who work more internally in partnership with the CEO in managing financial performance and maintaining the company's sound financial health. These types are not mutually exclusive, but the discussion and the tips for managing both aspects in tough times, would be useful to both CEOs and CFOs. In this chapter, Charan also has some great tips for managing the finances throughout the organisation by ". . . educating the troops in liquidity, most of whom do not have a clue about liquidity."

It's easy to see that Charan has a good handle on day-to-day corporate life - he is not just a theorist. For example, his keen understanding that "CFOs have a tendency not to trust line managers to do the right thing in all cases and therefore put some resources in reserve without telling anyone in case the company looks like it might come up short at the end of the quarter" will resonate with most senior financial managers.

Charan also has great tips for the other senior corporate managers. In the chapter on Operations, he covers both product and service type organisations. He provides an excellent example of how tough times can affect service delivery in the airline industry. With the downturn in business class travel, some airlines' capacity dropped by as much as 70%. This left the same number of cabin crew to service far less customers. One would expect customers to get far more attention. What often happened was that customers actually received less attention - because there were less people to serve, cabin crew took up the idle time by talking more amongst themselves. Charan's advice is to make sure your service functions are appropriately staffed and the need for service is stressed even more in these times.

Charan also has good news for trainers. Instead of cutting the training budget, he suggests that it should be more focused. "HR needs to create and deliver the appropriate materials and methods in areas such as contract negotiations and price setting, with an emphasis on collaboration. You will get a big return on investment if you recruit your own senior executives to teach some of these sessions by using actual information, problems and challenges. Not only will such sessions bring home the reality of why people need to master these skills, they will give the `teachers' a fresh insight into their own psychology and valuable input from people on the line."

From an organisation development perspective, one initial concern I had about the book was the number of times senior leaders were advised to communicate directly with the Board. Does this hint at a lack of role definition between CEO and the Board?. How should the CEO handle his/her direct reports communicating directly with the Board? This concern was not evident however, in the chapter written for the Board which focused on the Board/CEO relationship. Perhaps this role definition could be better spelt out. I was impressed with some of the common sense advice for the Board, such as having a cocktail party for 20 senior managers the day before a Board meeting. This meeting is not intended to provide further corporate information for the Board, rather it is to enable the Board members to gauge the morale of the organisation.

This would be a great book for anyone in a senior management role. For trainers, it could be very useful for two reasons - self-education to get a real handle on perhaps some unfamiliar areas of corporate life and as pre-reading for senior management and leadership development programmes. For coaches of senior executives, various chapters could be really good resources for clients' personal development. It's also recommended reading for anyone in a staff function wishing to improve their personal credibility within the organisation.

Bob Selden, author What To Do When You Become The Boss: How new managers become successful managers

In short: I would highly recommend this book to entrepreneurs who are looking for ideas on how to change their organizations. I would also recommend it to consultants who assist entrepreneurs in changing or strengthening organizations.

Thank you, Ram, for this book! There is only a small number of books that really inspire to change things. Within a week of reading the book, I halved the rent at my company (managing for cash), eliminated consultants changing lots of what they did into systems, prepared for the worst scenario and on with other execution that is too long to list here. Well, a lot of cash recovered just in a week which is a measurable result. No other books have inspired me to do such things in such a short time. And my staff loved it (not all of the consultants.....)

I have my company in Japan, and want to give lots of copies to people I know. Japanese entrepreneurs need to read it as a wake up call, so hope we would get a Japanese translation VERY soon.

It is a shame to see long reviews that do not reflect on any changes they have made at their companies inspired by the book. For business books no point talking about how good or bad they were, they either inspired and helped with changes or not.

Ram, thank you so much again, and look forward to your new books for entrepreneurs/leaders/change makers. Entrepreneurs, don't listen to academic reviews of this book, read, execute and judge for yourself.

I was disappointed with Ram Charan's latest contribution. Yes, there were some very good solid points about how to manage in these tougher economic times but I found it all a bit overly simplified and lacked a human dimension.

I didn't really learn a great deal more than I already knew.

'LEADERSHIP IN THE ERA OF ECONOMIC UNCERTAINTY: The New Rules for Getiing the Right Things Done in Difficult Times',
by Ram Charan

Having really enjoyed myself with reading & digesting noted business strategist Ram Charan's two earlier books, namely:

- 'Execution: The Discipline of Getting Things Done' (with Larry Bossidy as principal author);

- 'Know How: The 8 Skills that Separate People Who Perform from Those Who Don't';

I have been naturally inclined to read the author's latest book.

To be frank, I have in fact finished reading the book within 1-1/2 hours - about the waiting time for my wife to finish attending her weekly evening 1-1/2 hour English class at the language centre in Jurong East.

I have actually brought the book along with my scratchpad to read while waiting.

From my personal perspective, the book has certainly lived up to the secondary title in the book, 'The New Rules for Getting the Right Things Done in Difficult Times'.

With the global financial meltdown, resulting in cash & credit crunches, shrinking budgets, collapsing markets, sinking employee morale, disappearing suppliers, & nervous stakeholders, I must say, the timing of this book, especially when it has been written within a very short time frame, couldn't have been better.

The book reads more like a tactical operational manual.

I couldn't help feeling that the book also reads more like an intellectual amalgamation of the two earlier books I have mentioned. Hence, don't expect any ground-breaking stuff here.

At the end of the day, what the author has articulated so eloquently still boils down to execution, which needs to be in place to manage the three core business processes of people, strategy & operations, only this time, one is navigating today's troubled waters.

The author has taken the trouble even to provide advice to leaders at every level, from the CEO & country managers to department heads in finance, marketing, R & D, sales & manufacturing.

To ride on what Larry Bossidy has written toward the tail end of the Foreword:

I recommend readers to "Read . . . Learn . . . Thrive (instead of Survive) . . . Prosper!" from the experienced-based insight of the author.

The book is definitely a quick & easy read.

Interestingly, after reading it as mentioned in the beginning of this post, I still managed to make use of some spare time to browse the many magazines at the language centre. I have found one, entitled 'Parents World', January-February 2009 issue.

Right inside, I have spotted an interesting article: "How to Cope with Recession"

I have in fact jotted down in my scratchpad the following key advice from the article:

1) ensure that we have sufficient cash at hand;

2) keep a positive attitude & excellent performance at work;

3) strengthen relationships at home with friends;

4) review your financial position & prepare for recovery;

5) upgrade yourself;

6) stay health & fit;

7) care for the poor & needy;

As readers can see, the first one resonates with one of Ram Charan's suggested practical actions for immediate execution:

"protect cash flow vigilantly, even daily, & use cash more efficiently"

What a beautiful coincidence!

My point: Ram Charan's insights & deas can also readily apply in a personal application. All you need is some tweaking!

[Reviewed by Lee Say Keng, Knowledge Adventurer & Technology Explorer, February, 2009]

Very helpful little book with the kind of advice Charan is famous for. I took away a few things that made a lot of sense. Assume the worst scenario and plan for it. If things are not that bad you can adjust later. It is human nature to think that things can not be that bad.

Once you have the plan in place, create a plan for when things get better - you will have the advantage over those who do not move quickly enough. Thus the Lehman CEO went down while the Merrill Lynch CEO lives to fight another day.

Is this the same Ram Charan who, along with Larry Bossidy, wrote Execution in '02 and Confronting Reality in `04?

I didn't think so at first.

Those books are more abstract. Execution is about linking a business's operational, strategic, and people processes to achieve superior results. Confronting Reality takes a high-level look at how successful companies "model reality" en route to creating fundamental value and making money.

This book, by comparison, is more concrete. Gone are the frameworks and rubrics and occasional slips into professorspeech. Leadership in the Era of Economic Uncertainty is delivered at street level for leaders who, because of the downturn, have to make "a huge change in how they manage day-to-day."

The older books provide roadmaps but leave the driving up to you. This time Dr. Charan keeps one hand firmly on the wheel: most of the book's pages are filled with specific directions, i.e., new rules for CEOs and other functional managers. (which at times read like marching orders; he even uses a few uncharacteristic war-related references)

BUT...

Dig deeper and you start to connect the dots. His earlier works, for example, are also about navigating uncharted terrain. (From `04: "The old ways don't work in this age of lightning-fast change, high volatility, hyper competition and compressed margins.") And his basic prescription for surviving and thriving? It's essentially the same, too.

What's different is the topsy-turviness of the current external environment and the implications for leaders. One is that CEOs, in particular, have to walk a fine line:

"On one side you will have to convince the employees that the company is up against a serious crisis that requires urgent actions, some of which may be painful, most notably big reductions in head count. Yet while you are laying out the unvarnished truth about the economic environment, you also need to present a compelling argument and a credible plan to show that the problems the company faces can be solved..."

Dr. Charan walks the same line as the book's author. And I think he does a masterful job.

How's he pull it off? First, by outlining the challenges and opportunities that lie ahead. Then, by letting us know this book isn't just about what actions to take - it's also about the attitudes leaders should maintain in the process. Finally, by packing the rest of the book with sage advice.

For me, that advice boils down on the ACTION side to this: Manage the way he's been suggesting you manage all along. Focus on creating fundamental value, being realistic, and staying on the offensive. Only, now make sure you address five or six key objectives first. ("Manage for cash" is one such objective.) On the ATTITIUDE side: Simple. Dr. Charan believes "few problems are insoluble" and, as a leader, you need to make it clear "you're focused on the future and intend to be a winner."

Do these things and your company will survive the downturn and emerge even stronger.

This, on further reflection, is most definitely the same Ram Charan - writing with a greater sense of urgency, perhaps, and more in charge; but, like always: right on course and reassuring at every turn.

In uncertain times protecting cash flow becomes a business leader's first priority.

His or her focus shifts from the income statement to the balance sheet. Revenue and income growth take a back seat to the conservation and creation of cash. In this his 13th book, business advisor Ram Charan, posits that during the current global meltdown, daily knowledge of your organization's cash position is a necessity.
Earnings from operations, working capital and the sale of assets must be pursued aggressively. Each transaction must be weigh potential margin against the amount of cash that will be tied up in inventories and receivables and for how long.

This may involve a change in your management style. Charan argues volatile environments require intensity - deep immersion in the operational details of the business and the outside world. Plans need to be revisited daily. While long-term objectives cannot be abandoned, your new focus must be hands-on.

This will require:

1. Personal responsibility for leadership. You will be judged by whether or not you leave your organization in better shape than it was left to you.
2. Recognizing changes in reality. This is no small task as the economy careens chaotically.
3. Reallocate your time. To make correct decisions you will require an unprecedented grasp of the global and the granular.
4. Protect your core. In every business there is a central core of assets. Identify them.
5. Reassess your team. When the going gets tough; the tough get going as my old football coach would say. It has never been truer than now.
6. Be transparent. Information flow and motivation messages are rarely heard the first time they are sent. Both need to be repeated in an unfiltered fashion in real time.
7. Be visible.
8. Own the daily numbers.
9. Manage for cash.
10. Pare your customer and supplier base.
11. Know when to change your strategy.
12. Set shorter-term milestones.

The leader who confronts this economy's brutal realities first will have the best change to find opportunities in chaos and whose confidence will be contagious.