Books : Leadership and Management : Leadership and Management Book Summaries
 Leadership in the Era of Economic Uncertainty - Ram Charan
The New Rules for Getting the Right Things Done in Difficult Times
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Ram Charan,
Publisher: McGraw-Hill
ISBN: 0071626166
This is a synopsis only. RESULTS.com recommends you buy the original book.
Chief Executive Officers
Leaders overestimate how well they will fare because that is what they
want to believe. You need to prepare for the worst right now - or you
will put your company at risk.
Your focus must shift from the income statement to the balance sheet.
The most critical metric now is cash (working capital). Monitor cash,
inventory, accounts receivables – every week at minimum - even daily!
Lack of liquidity is lethal.
Revise your cash flow forecasts with pessimistic revenue assumptions. Will you still breakeven?
Focus on cash efficiency - not growth. Face the reality that you may need to shrink your company to survive.
Narrow your focus - Concentrate on the core. Simplify. Fewer customers,
fewer products, fewer facilities, fewer people, fewer suppliers - and a
stronger company. You will emerge smaller - but stronger, better, more
flexible, and better positioned.
Do not short change the future though. You must still invest wisely in the right areas to ensure payoffs in the future.
Get real time, ground level intelligence from your front lines in order
to make faster, better informed decisions. Get close to customers and
suppliers. What are they seeing? How are they feeling?
Strategic planning and target setting should be revised more
frequently. Make modifications as situations change. Annual planning
and budgeting is far too long. Your current strategy may become quickly
obsolete.
Instil
courage in your team by being present, being authentic, confronting
reality, telling the truth, and taking steps to address it decisively.
Leaders who were successful in good times may not be up to the
challenges confronting them today (anyone can look good in a rising
market) - and many became arrogant with the success they achieved by
pursuing aggressive growth at all costs through leveraging and taking
risks.
Now you need to be a real leader - to be able to lead your people
through the storm and develop a credible plan to do that.
Be bold. Defensive cost cutting is not enough. You also need to make
the right offensive moves - to grab market share - to acquire assets -
to invest in core competencies.
Be hands on - working at the front lines with your team down in the trenches.
Reduce costs and headcount surgically. Across the board cuts are stupid.
Cut costs before your revenues decline. Get ahead of the curve.
Build close relationships with customers. How can you add extra value to your strong customers?
How can you reduce your ties to weak customers who may go belly up - or
to those that cost you a lot of cash to service (make you hold a lot of
inventory / are slow payers etc)?
Sales & Marketing
Salespeople who are order takers will not cut it in this environment.
You must understand the customer's pain and provide customized
solutions that enable you both to succeed (win – win).
Salespeople will need to become more analytical and understand the importance of both margins and cashflow.
Salespeople must provide their company with ground level intelligence
of what is going on in the marketplace. This information must be
documented and shared where all functions in the firm can be made aware
of it.
Be wary of selling to firms who are likely to be bad payers. Sales
goals and incentives will need to be re-thought (e.g. Salespeople might
be better if they are incented for collecting cash). Some customers
will need to be dropped.
You may need to revise your value proposition - but beware of losing your brand identity - or cheapening your brand.
Chief Financial Officers
CFO's will need to manage cash effectively and ensure debt obligations can be met
Show your people – using visual examples - the impact on the financial statements of:
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a drop in revenue
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a decrease in gross margins
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how reducing overhead expense items directly improves profit
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how an increase in inventories or accounts receivables ties up cash
Develop dashboards to keep the financial picture visible – and help people confront reality.
Revise budgets monthly if necessary to reflect the changing reality.
Budgeting should not be an annual exercise based on last year plus or
minus certain % for each line item. Each line item must be recast based
on new projected reality – every quarter or even every month if
necessary.
Return on Investment (ROI) may not be the only measure of capital
allocation now. The timing of cash flows may be a higher priority in
terms of where you invest your money.
Some projects may need to be abandoned regardless of sunk costs or emotional attachments
Chief Operating Officers.
COO must understand the likely new break-even point – before falling
revenues become a reality and be able to rapidly adjust capacity to
suit the new lower level of demand.
Understand the long term implications (consequences) of any cost cutting measures - e.g.
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Can you quickly scale up again when demand improves?
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Will you lose key capabilities or relationships?
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If you reduce R&D, will your competitors gain an edge when things improve?
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If you reduce maintenance spending will it have costly consequences in the future?
Simplify and reduce product lines. Retain the core activities. Outsource everything else
Manage inventories - they are a huge cash trap. Adopt “Just In Time”
inventory management - or even “Produce on demand”. Simplify and speed
up your supply chain.
Maximize capacity utilization - and be able to quickly vary staffing levels according to demand.
Recognize & retain employees who have the highest engagement and customer satisfaction scores.
Zero based thinking – if you had to start this project again now –
would you still do it? Analyze which projects are critical to the
future and which need to be abandoned.
Your toughest decision as a leader will be where to make cuts - and where to focus and increase investment.
This can be a good time to get the right people in the right jobs. You
will now see who the real players are - who to keep and who to let go.
People who could do well in good times may not be tough enough,
decisive enough, or fast enough to adjust and make the necessary
changes to meet the challenges now.
Training should be maintained – but be specific to current issues.
Compensation needs to be revisited to make sense in light of this new reality.
New targets need to be set by the board of directors. It may not be
about growth, rather how to survive and outperform other competitors in
your industry. Many companies will become smaller in the next couple of
years and many will disappear.
Beware of cutting things without taking into regard their future impact.
Plan for worst case scenarios – but then work to make things better.
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