Business Strategy

Ram Charan's Know How – a Must Read on Leadership

I recently got to read Ram Charan’s Know-How (Thanks to Jeffrey of FSB associates). I have a very high regard for Ram Charan as a business mind. He is a quintessential CEO’s consultant. That is what a consultant dreams of becoming. So for someone like him to come up with his wisdom in such a candid way is amazing.

..People who create organic growth that is profitable and sustainable connect dots sooner and are on the offensive.

In this book he has tried to distill the wisdom he gained through all these years of consulting and advising the top executives. I very rarely agree with the “leadership” type of books, but this is one book I agree with.

Very early in his book, he makes an interesting distinction – of those who look Leader Material.. and those that are Good Leaders! Good Leaders have certain “Know-Hows” of how to run a business that those who have the charm of leaders have no idea of. I have also observed that the swashbuckling type guys at the helm are generally hollow. The ones who really succeed are the ones who are quiet and with a vision. Ram points out a certain characteristic of synthesizing various informations and data sets into a consistent thought and framework that can be used for a decision as the key distinguisher of a good leader. I agree! There is so much knowledge that is bombarded on our brains that it is not important to “collect” all that or just understand it… but the critical piece is to take ACTION!

The 8 main skills Ram talks about are:

  1. Positioning the Business to make Money
  2. Connecting teh Dots by Pinpointing and taking Action on Emerging Patterns of External Change
  3. Getting People to Work Together by Managing the Social System of your Business
  4. Judging, Selecting and Developing Leaders
  5. Molding a Team of Leaders
  6. Determining and Setting the Right Goals
  7. Setting Laser-Sharp Dominant Priorities
  8. Dealing with Forces Beyond the Market

The beauty of this book is that Ram has put there for us the very essence of running a business in very simple terms. Here is an example:

In its essence, to exist over time, every business – from Fortune 500 t a small proprietarship in your local community – has to sell something, make a profit, have more cash coming in than going out and earn more than the cost of other people’s money (the bank’s or shareholders’) to be in business. The money making elements of revenue growth, margin, velocity (use of capital per dollar of revenue), cash, and return on invested capital are universally the same for every business, of any type, anywhere in the world.

Such books are classics that you will need to refer to again and again! A must read!

Here is small section that I am reproducing with the permission of the publisher:

***

Judgment and Strength of a Leader

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By Ram Charan
Author of Know How

The greatest psychological challenge in setting and acting on priorities has to do with resource allocation. Whether in a group meeting or through conventional budgeting and capital approval processes, you have to demonstrate judgment and courage in making resource allocation decisions that reflect your business priorities and in following through to ensure that the things that should be happening in fact are. You have to do the analytic work to separate out the facts and assess the opportunities and risks, but you also need to call upon your inner strength and judgment as John did as CEO of his company.

“You know I’m always behind you, John, but I think you’re making a big mistake on this one,” Art, one of the division presidents, told John during the usual bottom-up, top-down budgeting process. “My division contributes 65 percent of the company’s profits and our brands need advertising support. If you think we’re fighting for market share now, just watch what happens six months down the road when consumers forget who we are and we can’t get on the shelves.”

John listened intently to all that Art had to say. After all, Art was experienced, respected, and the strongest leader they had. It was true that Art’s division brought in the lion’s share of revenues and profits. The problem was that the division was not bringing in what the company needed most: profitable growth. All of the divisions had been hurt by soft markets and currency fluctuations, but Art’s business was faced with especially intense competition that was pushing prices down, and it looked as if revenue and earnings would decline for the foreseeable future.

Cara’s division, on the other hand, had good margins and was growing. John had combed through Cara’s business plan and believed she had positioned the division well to grow faster than the market, but she would need ample resources to keep growing at the current rate.

Then there was Peter. He had already been to see John twice to try to impress on him the importance of continuing the development of the SAP initiative. The company had already spent some $50 million on it and Peter needed another $100 million spread over the next three years to bring it to fruition.

John knew that the decisions he made would seriously affect the future of the company and the lives of people who had put their hearts and souls into the business. But with earnings down and the price of the company’s stock depressed and only limited capital available for investment, he knew that he was about to make some of those people very unhappy, so unhappy that they might even leave the company. Relying on the goals and priorities he had thoughtfully established to guide his decisions about where resources had to be deployed, how they might be generated, and where they had to be extracted, he prepared himself to withstand the fallout from those decisions.

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Building a presence in growth markets was a top priority for the business so he increased Cara’s budget. He made the business judgment that Art’s division was on a downward slide that didn’t look as if it would be reversed any time soon, and cut Art’s budget. To free up more cash to pursue the opportunities in Cara’s business, John pulled the plug on the SAP project, even though he knew it meant the loss of jobs for people who had been dedicated to it and a write-off of $50 million.

John’s decisions were realistic, well reasoned, and anything but personal, but Art was deeply offended by what seemed to him a loss of power, and he began to consider his next career move. As hard as it was, John stood by his judgment to withdraw resources from places they had always gone. Six months later, the sales numbers for Cara’s division came in weaker than expected, and John dug in to see what had caused the weakness. He realized that the numbers were low because of currency swings, that the business was on the right track, and that the growth prospects were as bright as ever. Even when the numbers went off track, his judgment told him that the priorities and resource allocations he had made were still correct, and he stuck with them.

Copyright © 2007 by Ram Charan from the book Know-How Published by Crown Business; January 2007;$27.50US/$36.50CAN; 978-0-307-34151-8

A brief on Ram Charan:

Ram Charan is the coauthor of the bestseller Execution and the author of What the CEO Wants You to Know and many other books. What people throughout the business world acclaim are Dr. Charan’s practicality and the value he provides in helping them solve business problems. There are no high-falutin’ theories that have people scratching their heads and saying, “Wow, that’s really interesting, but what do I do Monday morning”? For Ram, the Monday-morning application of his ideas is the entire ball game and the reason why his teaching is valued at companies like General Electric, DuPont, Verizon, The Home Depot, KLM, Thomson Corporation, and many others. For more information about Ram Charan and his work, visit www.ram-charan.com

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