'This is not the time to skate on the edge'
The Financial Express, February 05, 2009, Page I
As businesses face the toughest test of our times, it’s time for leaders to anticipate what’s coming and take on the new challenges decisively. In his just-released book, Leadership in the Era of Economic Uncertainty, Ram Charan, 69, offers advice to CEOs on how to steer businesses through the minefield of contracting markets and emerge winners. “Succeeding in a volatile environment requires frequent adjustments at the operational level of the business as well as an occasional disruptive shift,” he writes.
The author of best selling titles like Execution and Boards that Deliver is celebrated for simplifying business problems down to their bare essentials. His new book offers and innovative ways of approaching and solving complex problems. In an exclusive email interview to fe’s Saikat Neogi, he identifies the essential priorities managers need to focus on during the current financial turmoil. Excerpts:
How much of risk-taking is advisable in these uncertain times?
In these times of tight credit conditions and almost total uncertainty about what will remedy the situation, leaders need to give the highest priority to managing cash, managing liquidity in the worst circumstances. This is not the time to skate on the edge. The penalty for slipping up on cash is a virtual vertical decline, and sometimes that decline is permanent. When we talk about risk, we are not talking about the risk of profit and loss. We are not talking about the risk of shrinking revenues. We are talking about the risk of not being able to keep the right liquidity. When it comes to liquidity, take no risks.
How can companies strike a balance between short-term risk management and long-term growth plans today?
Management needs to do mental tussling, mental wrestling and think in terms of alternatives. Each alternative has a different balance between short-term risk management and long-term growth. Evaluate each alternative with particular attention to having no risk on the liquidity front. Then look at sequential steps for your growth aspirations. Do not forget: growth does require cash. Build the strategic steps that require less cash. Master those and then let the environment change for the better.
Everybody says lean management, efficiency and right-sizing are key to survival and success for businesses today. But isn’t that what businesses need always to do? What more do we need in these challenging times?
Number one, it must be a constant practice of all managers to get ahead of the curve. They should be looking over the horizon and anticipating the effect on their revenue and cash. Right now, it’s a sliding economy globally. For most companies, growth rates will be curtailed or revenues will shrink. Management must do the right-sizing before the decline or shrinkage. Right-sizing must be done with cash in mind, not accounting numbers. Lean is always a good practice to strengthen a company. Right-sizing is an urgent necessity now. What better managers will do is when they cut, they will cut deep, create cash reserves, use them for innovation that will help the business grow after the storm.
Is this the time to lie low or innovate for the future?
Managements must continue to sharpen the organisational mental muscles. Innovation is a continuous thing. The amount of money needed to think creatively and experiment is not too much. It’s when a manager launches an innovation that the money is needed. Do not think about it as a question of either/or. Do both. And remember that innovation is not just about new products and services. It also applies to operations. This is a good time to pursue innovation around how work gets done.
Is downturn or upturn a better opportunity to relook at business strategies?
The better strategic players don’t wait for somebody’s planning cycle or for the storm clouds to clear. They have in their mind and heart all the key elements of their strategy. They constantly evaluate those, consciously and unconsciously, focus on detecting the external changes daily, and brainstorm with other people to see if there is a radical change coming that you can ride on to change the game of your industry. You will be ahead.
If we have losers and more losers today, there should be some winners, too. Who will be the likely winners?
When there is a rising ride, the losers are hidden. When the tide goes out, those who are naked get exposed. You see more losers that way. The winners are those who mange for liquidity now and continue to do innovation at the same time. They are realists, and they manage their key talent well.
The Financial Express, February 05, 2009, Page I
As businesses face the toughest test of our times, it’s time for leaders to anticipate what’s coming and take on the new challenges decisively. In his just-released book, Leadership in the Era of Economic Uncertainty, Ram Charan, 69, offers advice to CEOs on how to steer businesses through the minefield of contracting markets and emerge winners. “Succeeding in a volatile environment requires frequent adjustments at the operational level of the business as well as an occasional disruptive shift,” he writes.
The author of best selling titles like Execution and Boards that Deliver is celebrated for simplifying business problems down to their bare essentials. His new book offers and innovative ways of approaching and solving complex problems. In an exclusive email interview to fe’s Saikat Neogi, he identifies the essential priorities managers need to focus on during the current financial turmoil. Excerpts:
How much of risk-taking is advisable in these uncertain times?
In these times of tight credit conditions and almost total uncertainty about what will remedy the situation, leaders need to give the highest priority to managing cash, managing liquidity in the worst circumstances. This is not the time to skate on the edge. The penalty for slipping up on cash is a virtual vertical decline, and sometimes that decline is permanent. When we talk about risk, we are not talking about the risk of profit and loss. We are not talking about the risk of shrinking revenues. We are talking about the risk of not being able to keep the right liquidity. When it comes to liquidity, take no risks.
How can companies strike a balance between short-term risk management and long-term growth plans today?
Management needs to do mental tussling, mental wrestling and think in terms of alternatives. Each alternative has a different balance between short-term risk management and long-term growth. Evaluate each alternative with particular attention to having no risk on the liquidity front. Then look at sequential steps for your growth aspirations. Do not forget: growth does require cash. Build the strategic steps that require less cash. Master those and then let the environment change for the better.
Everybody says lean management, efficiency and right-sizing are key to survival and success for businesses today. But isn’t that what businesses need always to do? What more do we need in these challenging times?
Number one, it must be a constant practice of all managers to get ahead of the curve. They should be looking over the horizon and anticipating the effect on their revenue and cash. Right now, it’s a sliding economy globally. For most companies, growth rates will be curtailed or revenues will shrink. Management must do the right-sizing before the decline or shrinkage. Right-sizing must be done with cash in mind, not accounting numbers. Lean is always a good practice to strengthen a company. Right-sizing is an urgent necessity now. What better managers will do is when they cut, they will cut deep, create cash reserves, use them for innovation that will help the business grow after the storm.
Is this the time to lie low or innovate for the future?
Managements must continue to sharpen the organisational mental muscles. Innovation is a continuous thing. The amount of money needed to think creatively and experiment is not too much. It’s when a manager launches an innovation that the money is needed. Do not think about it as a question of either/or. Do both. And remember that innovation is not just about new products and services. It also applies to operations. This is a good time to pursue innovation around how work gets done.
Is downturn or upturn a better opportunity to relook at business strategies?
The better strategic players don’t wait for somebody’s planning cycle or for the storm clouds to clear. They have in their mind and heart all the key elements of their strategy. They constantly evaluate those, consciously and unconsciously, focus on detecting the external changes daily, and brainstorm with other people to see if there is a radical change coming that you can ride on to change the game of your industry. You will be ahead.
If we have losers and more losers today, there should be some winners, too. Who will be the likely winners?
When there is a rising ride, the losers are hidden. When the tide goes out, those who are naked get exposed. You see more losers that way. The winners are those who mange for liquidity now and continue to do innovation at the same time. They are realists, and they manage their key talent well.
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