Recently I happened to read the book The Company: A Short History Of A Revolutionary Idea by John Micklethwait and Adrian Wooldridge(Phoenix ,2005) ,Editor-in-chief and Management Editor respectively of The Economist . I happened to read the book while researching on for writing my book on corporate governance. The book provides vast details of research into the origins, growth and the advantages and disadvantages of the innovative idea that enabled countries and economies to achieve tremendous powers on the economic front. The book also details the issues that follow in making it accountable to the shareholders and stakeholders.
The authors take great effort and pains to describe the various stages of the transformation of the original idea to the current form. They also detail the growth of the concept in different geographical areas like the USA, Britain, Germany and Japan. The growth of the managerial capitalism and its role in taking the company form to greater heights and also the growth of companies beyond the boundaries of a country to become multinationals. The authors also discuss about the future of the company keeping the background of social concerns in which they are expected to operate and conclude that “The foremost contribution of the company to society has been through economic progress. It has an obligation to obey the law. But it is designed to make money”. A very good book for those who want to research into the origin and growth of the company idea for promoting entreprenuership.
Friday, March 26, 2010
Wednesday, March 17, 2010
Leading In Times Of Crisis
Reviews of Two Good Books On Leading In Crisis Situations
Names of the books : Leadership In The Era of Economic Uncertainty and 7 Lessons for Leading In Crisis
Authors : Ram Charan and Bill Goerge
Publisher : Tata McGraw- Hill and Jossey- Bass
Pages : 140 and 139
Price : Rs. 375 and Rs,1081
The years 2007 and 2008 were significant in that what was started off originally as the sub-prime criss led to the collapse of some of the best and hitherto highly respected corporate entities. The names included Bear Stearns, Lehman Brothers, AIG, Merrill Lynch, Washington Mutual etc in the financial services sector and General Motors and Chrysler in the manufacturing sector. The tremors were felt throughout the economy and a number of highly reputed names like Citigroup just scraped through with the government’s bailout program. What was started off as a small problem in US assumed global proportions, thanks to the globalization initiatives, and led to recessionary trends across most parts of the globe including India. While apprehensions about the long tenure it was expected to last have been proved mostly wrong, it left a serious dent on corporations and businesses. Eventhough the world is yet to recover fully from the shock, revival signs have been visible on the horizon. And some of the academically oriented leaders have tried to find out the reasons or causes leading to the fiasco. A few books have also appeared on the horizon dealing with the issues. Prominent among them have been Ram Charan’s Leadership In The Era of Economic Uncertainty and Bill George's 7 Lessons for Leading In Crisis. The beauty is that both the books made their appearance in the midst of the crisis.While Charan is more prescriptive, advising what actions to be taken by each part of a business organization, George is more forthright in putting the blame squarely on leadership.
Usually books of this sort appears after the economic or financial turmoil is over and the dust settled, usually a post-mortem and how-to-do advice if anything like that recurs. Charan and George have done a great service to the business and management by writing a prescription of what needs to be done while one is going through the economic downturn and uncertainty. Kudos to Charan and George! And the books might have landed in the laps of Indian readers just when they have started feeling the pinch of the tough economic realities.
In Leadership In The Era of Economic Uncertainty, Charan, without mincing words, explains how to face such harsh realities in his characteristic simple, lucid style. Each chapter tells what a typical company constituent must do in these types of tough economic situations starting with the CEO, through the front line sales & marketing personnel the CFO, the operations guys, the R&D, the supply chain, various staff functions like HR,PR, investment relations etc ending with the Board of Directors. While the role and process of each of the constituent is different, the underlying theme is common: conserve cash while not taking your eyes off the future.
Charan starts by narrating examples of how corporations and their leaders take decisive actions based on the cues they get from the environment. He explains how Chad Holliday, CEO of DuPont initiated a Corporate Crisis plan, which when pressed into action would bring together the senior-most managers of the company to appraise the cause of the crisis and put in place the appropriate disaster control procedures. He even put together a team constituting of its chief economist and head of pension fund to communicate to the employees in plain, non-technical language the roots of the crisis and how it was affecting the company. Every employee of the company had an opportunity for a face-to-face meeting with a manager to get to know what needs to be done. Each employee was asked to cut costs and conserve cash. According to Charan, Chad Holliday was in command in the face of uncertainty, by taking timely and decisive actions.
Charan says the fundamental ways of managing business today is by shifting the focus from the income statement and balance sheet to the cash flow statement. The most critical metric today, according to him, is cash. One has to vigourously pursue all three sources of cash namely, earnings from operations, inventories and receivables(working capital) and the sale of assets. One should rethink growth and not strive blindly for marketshare. Cash efficiency shall rule all decisions on revenues. Sometimes, companies have to even think of shrinking revenues (the opposite of growth).Management has to put in place a new intensity by being deeply concerned about details; Charan uses the term “ground-level intelligence”. The management has to take initiatives to find out how the customers and suppliers are doing, in the face of harsh realities. Move over quarterly or even monthly reports, reviews must now be done on weekly or even daily basis. Budgets have to be prepared for weeks and months and not for quarters and years Charan describes six essential leadership traits which are necessary for these hard times: Honesty & Credibility-leader cant fake or bluff, one has to show intellectual honesty & humility. Ability to inspire- critical today, by working with people to toughen their resolve to come through successful-take actions which will show incremental successes. Real-time connection with reality-put every information on the table, however bad they are. Realism tempered with optimism- while realities are brought on the table, create a confidence that most of the problems have solutions; bring in a dose of optimism and transform fear into action. Managing with intensity- be hands on, have your years on the ground ;get involved fully. Boldness in building for the future- resist the pressure to be blind to the future because of the necessity of attention to the current-put strategic bets into the future.
Charan says that the CEOs have to show tremendous leadership to be decisive; be in touch with the day-to-day operations. One has to take not only bold decisions but even justify them. One has to become more hands on , spending more time inside the company than outside. Decide on what core they can’t afford to lose and sharpen and strengthen that core.
Every action must be transparent and any cost cutting initiative must start from the top.
All attempts shall be made to lower the company’s cash Break-even point. The objective must be to cut costs before revenues decline so as to get ahead of the curve.
One has to be choosy with respect to customers and suppliers. For example, you have to be wary of customers who forces you to carry a lot inventory. You should also be prepared to lose a major customer who is not able to wither the storm. While selecting which customers and suppliers to be retained, conservation of cash must be the guiding principle.
Sales and marketing people have to become “intelligence agents” bringing in ground-level intelligence for fundamental decisions of the company. They should be able to understand what causes customers’ revenues and profits to increase and should seek ways to help them do that. They should be prepared to drop a customer based on evidence. Any customer who puts your economies of scale into a disarray must be watched. The sales people must try to create and enhance the value for the customers.
These tough times need the role of CEO also to different. He can’t any more be obsessed with the financial reports alone. He should become more actively involved with the management processes of budgeting, cost-cutting, compensation decisions, cash positions, and also communicating the financial facts to everybody who matters.
At the operational level, the capital expenditures have to be given a rethinking, product line is streamlined to result in lowest use of cash, use outsourcing opportunities wherever possible etc. R&D priorities have to be reset, making the best use of available resources and working in close collaboration with sales and marketing. Redefine the supply chain management systems to reduce the inventory of all items to the minimum. Work in close collaboration with suppliers and customers. Make sure that suppliers as well as the customers see the same realities that you see.
The staff functions like HR, Public Relations, and investor relations have to be made functionally effective with the aim of cost reduction and cash conservation. While acts like head count reduction, reassessing compensation, succession and talent planning are part of HR functions in tough times, one has to move very cautiously. Head count reduction has to be done in one shot and in a fair and equitable manner. While it could still be painful to lose jobs, such losses shall not come as a shocking experience to the people.
Towards the end, Charan explains the role of the Board of Directors. Strategy setting and approving the targets of the management have to be done more realistically. They have to keep close watch on the right factors and must protect the shareholders’ interests. They have to realistically set the CEO and other senior executives’ compensation. Succession planning is another thing which they have to do especially when the current CEO doesn’t live upto facing the challenges of the turbulent periods that the company is going through.
But for those who have read the author’s book “Every Business Is A Growth Business”, (coauthored with Noel M.Tichy and Charles Burck)the contentions given here might look a little antithesis. In that book Charan wanted to convey the message that every business can grow at all times by redefining the market boundaries or enlarging the pond one fishes in or by looking at market segments adjacent to the current business. They called it “Strategy from Outside-in”. As they stressed that “In the outside-in company, the key word is need, not product. Its people are not focusing on getting half a point marketshare; they are totally immersed in the minds of customers, looking for ways to expand demand.” Doesn’t the same strategy apply in tough economic situations when demand falls? And is cash conservation to be done only when things are tough in the marketplace? T.J.Rodgers (Chairman of Cypress Semiconductors) et al in their book No Excuse Management (1993, Currency Doubleday, New York) said, “The seeds of destruction are sown in good times, not bad times”.
In 7 Lessons for Leading In Crisis Bill George opines that crises like these are opportunities to test one's leadership. While crises have brought down many leaders and their organizations with them, there are many leaders who have risen to the challenges and proven their worth. There are no formal training programmes for executives to lead the organisations through a crisis. And leaders who never get tested with crisis situations will never be able to cope up with the sudden, unforeseen events. According to George, some buckle under pressure; others become immobilized. But there are also leaders who not only pass such a rigorous test but emerge even stronger. Leaders like Lou Gerstner of IBM and Anne Mulcahy of Xerox showed great leadership, saving their companies from the clutches of
impending bankruptcy and taking their companies out of trouble and making them much stronger, and taking a renewed growth path. During the global economic meltdown, started at the Wall Street, while leaders like J P Morgan's Jamie Dimon, Goldman Sachs' Lloyd Blankefien and Morgan Stanley's John Mack could meet the challenge, Citigroup's Chuck Prince, AIG's Martin Sullivan and Lehman Brothers' Richard Fuld were unable to cope with the onslaught of pressure.
George claims that the origins of the problems we faced in the recent meltdown go back to 1970s when leading economists like Milton Friedman advocated that shareholder value should be the primary measure of corporate performance. The popularity claimed by this concept led executives to believe in meeting the expectations on quarterly earnings. This led executives to abandon investments aimed at long-term well-being of the corporation- in R&D, customer satisfaction etc. According to George, Wall Street leaders failed to learn from the earlier events like the failure of Long Term Capital Management in the late nineties, collapses of the corporates like Enron, WorldCom and Global Crossing and auditors like Arthur Andersen in the early 2000s. The recent global meltdown was the result of the assumption of undue amount of risks aided by the deregulation of financial institutions such as repeal of the 1933 Glass-Stegall Act by the Government .
George suggests 7 lessons to enable leaders to face crises in future in order to avoid such mishaps of the past. These are:
1) Face reality, starting with yourself . Before any leader wants to lead the organization through a crisis, he has to acknowledge that he is indeed in one. Also, he has to get everyone else acknowledge the same. This is not very easy as leaders have a tendency to go into a denial mode about the urgency and severity of the challenges they are facing.They start blaming everybody else for their problems but very rarely accept them as their’s.This is because it is human tendency to resist admitting mistakes. And truth tellers like Sherron Watkins of Enron (who told about her concern regarding the financial misstatements to Chairman Ken Lay) will get not only rebuffed but also ostracized. Denying the existence of a problem will only make things worse. One has to show lot of courage to face reality as it is.
2) Don't be Atlas; get the world off your shoulders. You have decided to face reality. But can you get through the crisis alone? You can't. So don't try to carry world on your shoulders. Reach out to others for help, advice, and support. For this to happen, the leader has to make himself vulnerable. Exposing one's vulnerabilities can gain not only support and commitment from other people but also their respect. Leaders will be able to connect with people at a deeper level and that will lead to better team spirit within the organizations.
5) Dig deep for the root cause. Due to the pressure of the crisis, leaders will be tempted to jump to quick-fix solutions that may keep the real problems hidden leaving the organization vulnerable to repeating crises. In the early stages of a crisis, the initial symptoms could be mistaken as the real problems. And, there will be a tendency to fix such symptoms before probing deep to identify the root causes. It would be like cutting the weeds without removing the root and the consequences will be clear: the weeds will grow back. Unless the root cause is corrected, there is always the chance that the organization will find itself in yet another crisis immediately after.
4) Get ready for the long haul. In the early days of crisis, one may be under the impression that things can't really be that bad. But things could really be bad and will take some time to manifest. In such times of crisis, one has to be prepared for a long haul of difficulties and efforts to bring the things back to normalcy. One has to conserve all the cash in his preparation for the long and arduous journey. Fiscal discipline and conservatism must be given importance than the short-term financial measures like EPS or P/E ratio.Conservation of cash to see the firm through the difficult timer shall be given priority.Survival is the most important strategic perspective of a leader in the face of a crisis.
5) Never waste a good crisis. A goods crisis may be an excellent opportunity to make desirable and even major changes in our organization as under crisis situations, there will be least resistance to changes. Hence crises may be god-given opportunities for the leader to take actions to strengthen the organization. Crisis situations offer a lot of opportunities for learning. Such learning can lead to wonderful ideas for future well-being and growth. Leaders can look forward to crisis as opportunities for organizational transformation.
6) You are in the spotlight : Follow True North. During a crisis, all eyes are on you- on what you do inside and outside. Will you wilt under pressure or will you be focused on the Moral Compass or what George calls as True North? One has to stay true to his values. One can make or break his reputation in no time. One has to be very clear about one's beliefs and principles. A culture of candor must be created for information to flow freely through the organization. For this to happen, leaders themselves have to be candid. The advice for leaders is to get out in front of the crisis very early on with clear communications, both internally and externally, which will build confidence and credibility with all the constituents.
7) Go on the offence, focus on winning now. After the crisis is over, go all out to win the market rather than wait & see what is going to happen. Try reshaping the market through your actions. Visionary leaders should make good investments in a downturn when competitors pull back their investments. They should fine tune their strategies for the future course of business. This is a good opportunity for them to place their businesses ahead of competitors.
George concludes that a crisis may be a defining moment for a leader. It could make or break a leader. Today nobody remembers Richard Fuld as a leader who painstakingly built Lehman Brothers to glory over thirty years but as a leader who presided over the demise of the company. Same as true of Satyam's Ramalinga Raju. Raju was an icon in the Indian IT industry. He created a global company and also created more than 50000 jobs.But today, he is considered as a crook, a cheat who led Satyam to ignominious fall from top.So, George advises that leaders in the face of a crisis should never lose their sight of the true north, their moral compass.
While both books are well-written, Charan’s book is filled with more pro- business prescriptions whereas George’s reccommendations are more organization oriented.Both offer good insights on how leaders should re-orient themselves in the face of a crisis.
But for those who have read Charan’s earlier book, Every Business Is A Growth Business, (coauthored with Noel M.Tichy and Charles Burck)the contentions given here might look a little antithesis. In that book Charan wanted to convey the message that every business can grow at all times by redefining the market boundaries or enlarging the pond one fishes in or by looking at market segments adjacent to the current business. They called it “Strategy from Outside-in”. As they stressed that “In the outside-in company, the key word is need, not product. Its people are not focusing on getting half a point marketshare; they are totally immersed in the minds of customers, looking for ways to expand demand.” Doesn’t the same strategy apply in tough economic situations when demand falls? And is cash conservation to be done only when things are tough in the marketplace? T.J.Rodgers (Chairman of Cypress Semiconductors) et al in their book No Excuse Management (1993, Currency Doubleday, New York) said, “The seeds of destruction are sown in good times, not bad times”.
Gorge's book doesn't contain an index which creates problems for the research oriented readers who would like to refer back at a later date.
About The Authors
Dr. Ram Charan is a highly sought after advisor to businesses and many chief executives and a prolific writer on business and an award-winning teacher. He has helped boards and top executives of a number of companies like GE, Novartis, Dupont, Honeywell, Bank Of America, Home Depot etc on strategy sessions, successions, self-evaluations, and CEO compensation. He has served on the National Association of Corporate Directors’(NACD) Blue Ribbon Commission on Corporate Governance. He is a director on the boards of Austin Industries, Tyco Electronics, and Emaar Manufacturing in India. He has won a number of Best Teacher awards from many institutions like Northwestern & GE’s Crottonville Institute. He was rated as one of the top ten resources for in-house executive development programmes by Business Week. Dr.Charan has written a number of best-selling books like What The CEO Wants You To Know, Boards At Work, Leaders At All Levels: Deepening Your Talent Pool to Solve the SUCCESSION Crisis, What The Customer Wants You To Know etc and co-authored Every Business Is A Growth Business(with Noel Tichy and Charles Burck), Execution and Confronting Reality(with Larry Bossidy).He is based in Dallas, Texas.
Bill George
Bill George is Professor of Management Practice at Harvard Business School, where he is teaching leadership and leadership development along with several executive education programs. Prior to this,Mr. George was Professor of Leadership and Governance at IMD International in Lausanne, Switzerland and Executive-in-Residence at Yale University’s School of Management
His previous three books, True North: Discover Your Authentic Leadership, Finding Your True North: A Personal Guide, and Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value, were best-sellers. Mr. George was and Chief Executive Officer of Medtronic from 1991 to 2001 and also Chairman from 1996 to 2002. Under his leadership, Medtronic's market capitalization grew from $1.1 billion to $60 billion, averaging 35% a year.
Mr. George also serves as a director of ExxonMobil and Goldman Sachs, as well as Carnegie Endowment for International Peace, World Economic Forum USA, and Guthrie Theater.
Note: The Review Of Ram Charan’s Leadership In The Era Of Economic Uncertainty was initially accepted for publication by SCMS Journal Of Management but was told later that it will not be published.
Names of the books : Leadership In The Era of Economic Uncertainty and 7 Lessons for Leading In Crisis
Authors : Ram Charan and Bill Goerge
Publisher : Tata McGraw- Hill and Jossey- Bass
Pages : 140 and 139
Price : Rs. 375 and Rs,1081
The years 2007 and 2008 were significant in that what was started off originally as the sub-prime criss led to the collapse of some of the best and hitherto highly respected corporate entities. The names included Bear Stearns, Lehman Brothers, AIG, Merrill Lynch, Washington Mutual etc in the financial services sector and General Motors and Chrysler in the manufacturing sector. The tremors were felt throughout the economy and a number of highly reputed names like Citigroup just scraped through with the government’s bailout program. What was started off as a small problem in US assumed global proportions, thanks to the globalization initiatives, and led to recessionary trends across most parts of the globe including India. While apprehensions about the long tenure it was expected to last have been proved mostly wrong, it left a serious dent on corporations and businesses. Eventhough the world is yet to recover fully from the shock, revival signs have been visible on the horizon. And some of the academically oriented leaders have tried to find out the reasons or causes leading to the fiasco. A few books have also appeared on the horizon dealing with the issues. Prominent among them have been Ram Charan’s Leadership In The Era of Economic Uncertainty and Bill George's 7 Lessons for Leading In Crisis. The beauty is that both the books made their appearance in the midst of the crisis.While Charan is more prescriptive, advising what actions to be taken by each part of a business organization, George is more forthright in putting the blame squarely on leadership.
Usually books of this sort appears after the economic or financial turmoil is over and the dust settled, usually a post-mortem and how-to-do advice if anything like that recurs. Charan and George have done a great service to the business and management by writing a prescription of what needs to be done while one is going through the economic downturn and uncertainty. Kudos to Charan and George! And the books might have landed in the laps of Indian readers just when they have started feeling the pinch of the tough economic realities.
In Leadership In The Era of Economic Uncertainty, Charan, without mincing words, explains how to face such harsh realities in his characteristic simple, lucid style. Each chapter tells what a typical company constituent must do in these types of tough economic situations starting with the CEO, through the front line sales & marketing personnel the CFO, the operations guys, the R&D, the supply chain, various staff functions like HR,PR, investment relations etc ending with the Board of Directors. While the role and process of each of the constituent is different, the underlying theme is common: conserve cash while not taking your eyes off the future.
Charan starts by narrating examples of how corporations and their leaders take decisive actions based on the cues they get from the environment. He explains how Chad Holliday, CEO of DuPont initiated a Corporate Crisis plan, which when pressed into action would bring together the senior-most managers of the company to appraise the cause of the crisis and put in place the appropriate disaster control procedures. He even put together a team constituting of its chief economist and head of pension fund to communicate to the employees in plain, non-technical language the roots of the crisis and how it was affecting the company. Every employee of the company had an opportunity for a face-to-face meeting with a manager to get to know what needs to be done. Each employee was asked to cut costs and conserve cash. According to Charan, Chad Holliday was in command in the face of uncertainty, by taking timely and decisive actions.
Charan says the fundamental ways of managing business today is by shifting the focus from the income statement and balance sheet to the cash flow statement. The most critical metric today, according to him, is cash. One has to vigourously pursue all three sources of cash namely, earnings from operations, inventories and receivables(working capital) and the sale of assets. One should rethink growth and not strive blindly for marketshare. Cash efficiency shall rule all decisions on revenues. Sometimes, companies have to even think of shrinking revenues (the opposite of growth).Management has to put in place a new intensity by being deeply concerned about details; Charan uses the term “ground-level intelligence”. The management has to take initiatives to find out how the customers and suppliers are doing, in the face of harsh realities. Move over quarterly or even monthly reports, reviews must now be done on weekly or even daily basis. Budgets have to be prepared for weeks and months and not for quarters and years Charan describes six essential leadership traits which are necessary for these hard times: Honesty & Credibility-leader cant fake or bluff, one has to show intellectual honesty & humility. Ability to inspire- critical today, by working with people to toughen their resolve to come through successful-take actions which will show incremental successes. Real-time connection with reality-put every information on the table, however bad they are. Realism tempered with optimism- while realities are brought on the table, create a confidence that most of the problems have solutions; bring in a dose of optimism and transform fear into action. Managing with intensity- be hands on, have your years on the ground ;get involved fully. Boldness in building for the future- resist the pressure to be blind to the future because of the necessity of attention to the current-put strategic bets into the future.
Charan says that the CEOs have to show tremendous leadership to be decisive; be in touch with the day-to-day operations. One has to take not only bold decisions but even justify them. One has to become more hands on , spending more time inside the company than outside. Decide on what core they can’t afford to lose and sharpen and strengthen that core.
Every action must be transparent and any cost cutting initiative must start from the top.
All attempts shall be made to lower the company’s cash Break-even point. The objective must be to cut costs before revenues decline so as to get ahead of the curve.
One has to be choosy with respect to customers and suppliers. For example, you have to be wary of customers who forces you to carry a lot inventory. You should also be prepared to lose a major customer who is not able to wither the storm. While selecting which customers and suppliers to be retained, conservation of cash must be the guiding principle.
Sales and marketing people have to become “intelligence agents” bringing in ground-level intelligence for fundamental decisions of the company. They should be able to understand what causes customers’ revenues and profits to increase and should seek ways to help them do that. They should be prepared to drop a customer based on evidence. Any customer who puts your economies of scale into a disarray must be watched. The sales people must try to create and enhance the value for the customers.
These tough times need the role of CEO also to different. He can’t any more be obsessed with the financial reports alone. He should become more actively involved with the management processes of budgeting, cost-cutting, compensation decisions, cash positions, and also communicating the financial facts to everybody who matters.
At the operational level, the capital expenditures have to be given a rethinking, product line is streamlined to result in lowest use of cash, use outsourcing opportunities wherever possible etc. R&D priorities have to be reset, making the best use of available resources and working in close collaboration with sales and marketing. Redefine the supply chain management systems to reduce the inventory of all items to the minimum. Work in close collaboration with suppliers and customers. Make sure that suppliers as well as the customers see the same realities that you see.
The staff functions like HR, Public Relations, and investor relations have to be made functionally effective with the aim of cost reduction and cash conservation. While acts like head count reduction, reassessing compensation, succession and talent planning are part of HR functions in tough times, one has to move very cautiously. Head count reduction has to be done in one shot and in a fair and equitable manner. While it could still be painful to lose jobs, such losses shall not come as a shocking experience to the people.
Towards the end, Charan explains the role of the Board of Directors. Strategy setting and approving the targets of the management have to be done more realistically. They have to keep close watch on the right factors and must protect the shareholders’ interests. They have to realistically set the CEO and other senior executives’ compensation. Succession planning is another thing which they have to do especially when the current CEO doesn’t live upto facing the challenges of the turbulent periods that the company is going through.
But for those who have read the author’s book “Every Business Is A Growth Business”, (coauthored with Noel M.Tichy and Charles Burck)the contentions given here might look a little antithesis. In that book Charan wanted to convey the message that every business can grow at all times by redefining the market boundaries or enlarging the pond one fishes in or by looking at market segments adjacent to the current business. They called it “Strategy from Outside-in”. As they stressed that “In the outside-in company, the key word is need, not product. Its people are not focusing on getting half a point marketshare; they are totally immersed in the minds of customers, looking for ways to expand demand.” Doesn’t the same strategy apply in tough economic situations when demand falls? And is cash conservation to be done only when things are tough in the marketplace? T.J.Rodgers (Chairman of Cypress Semiconductors) et al in their book No Excuse Management (1993, Currency Doubleday, New York) said, “The seeds of destruction are sown in good times, not bad times”.
In 7 Lessons for Leading In Crisis Bill George opines that crises like these are opportunities to test one's leadership. While crises have brought down many leaders and their organizations with them, there are many leaders who have risen to the challenges and proven their worth. There are no formal training programmes for executives to lead the organisations through a crisis. And leaders who never get tested with crisis situations will never be able to cope up with the sudden, unforeseen events. According to George, some buckle under pressure; others become immobilized. But there are also leaders who not only pass such a rigorous test but emerge even stronger. Leaders like Lou Gerstner of IBM and Anne Mulcahy of Xerox showed great leadership, saving their companies from the clutches of
impending bankruptcy and taking their companies out of trouble and making them much stronger, and taking a renewed growth path. During the global economic meltdown, started at the Wall Street, while leaders like J P Morgan's Jamie Dimon, Goldman Sachs' Lloyd Blankefien and Morgan Stanley's John Mack could meet the challenge, Citigroup's Chuck Prince, AIG's Martin Sullivan and Lehman Brothers' Richard Fuld were unable to cope with the onslaught of pressure.
George claims that the origins of the problems we faced in the recent meltdown go back to 1970s when leading economists like Milton Friedman advocated that shareholder value should be the primary measure of corporate performance. The popularity claimed by this concept led executives to believe in meeting the expectations on quarterly earnings. This led executives to abandon investments aimed at long-term well-being of the corporation- in R&D, customer satisfaction etc. According to George, Wall Street leaders failed to learn from the earlier events like the failure of Long Term Capital Management in the late nineties, collapses of the corporates like Enron, WorldCom and Global Crossing and auditors like Arthur Andersen in the early 2000s. The recent global meltdown was the result of the assumption of undue amount of risks aided by the deregulation of financial institutions such as repeal of the 1933 Glass-Stegall Act by the Government .
George suggests 7 lessons to enable leaders to face crises in future in order to avoid such mishaps of the past. These are:
1) Face reality, starting with yourself . Before any leader wants to lead the organization through a crisis, he has to acknowledge that he is indeed in one. Also, he has to get everyone else acknowledge the same. This is not very easy as leaders have a tendency to go into a denial mode about the urgency and severity of the challenges they are facing.They start blaming everybody else for their problems but very rarely accept them as their’s.This is because it is human tendency to resist admitting mistakes. And truth tellers like Sherron Watkins of Enron (who told about her concern regarding the financial misstatements to Chairman Ken Lay) will get not only rebuffed but also ostracized. Denying the existence of a problem will only make things worse. One has to show lot of courage to face reality as it is.
2) Don't be Atlas; get the world off your shoulders. You have decided to face reality. But can you get through the crisis alone? You can't. So don't try to carry world on your shoulders. Reach out to others for help, advice, and support. For this to happen, the leader has to make himself vulnerable. Exposing one's vulnerabilities can gain not only support and commitment from other people but also their respect. Leaders will be able to connect with people at a deeper level and that will lead to better team spirit within the organizations.
5) Dig deep for the root cause. Due to the pressure of the crisis, leaders will be tempted to jump to quick-fix solutions that may keep the real problems hidden leaving the organization vulnerable to repeating crises. In the early stages of a crisis, the initial symptoms could be mistaken as the real problems. And, there will be a tendency to fix such symptoms before probing deep to identify the root causes. It would be like cutting the weeds without removing the root and the consequences will be clear: the weeds will grow back. Unless the root cause is corrected, there is always the chance that the organization will find itself in yet another crisis immediately after.
4) Get ready for the long haul. In the early days of crisis, one may be under the impression that things can't really be that bad. But things could really be bad and will take some time to manifest. In such times of crisis, one has to be prepared for a long haul of difficulties and efforts to bring the things back to normalcy. One has to conserve all the cash in his preparation for the long and arduous journey. Fiscal discipline and conservatism must be given importance than the short-term financial measures like EPS or P/E ratio.Conservation of cash to see the firm through the difficult timer shall be given priority.Survival is the most important strategic perspective of a leader in the face of a crisis.
5) Never waste a good crisis. A goods crisis may be an excellent opportunity to make desirable and even major changes in our organization as under crisis situations, there will be least resistance to changes. Hence crises may be god-given opportunities for the leader to take actions to strengthen the organization. Crisis situations offer a lot of opportunities for learning. Such learning can lead to wonderful ideas for future well-being and growth. Leaders can look forward to crisis as opportunities for organizational transformation.
6) You are in the spotlight : Follow True North. During a crisis, all eyes are on you- on what you do inside and outside. Will you wilt under pressure or will you be focused on the Moral Compass or what George calls as True North? One has to stay true to his values. One can make or break his reputation in no time. One has to be very clear about one's beliefs and principles. A culture of candor must be created for information to flow freely through the organization. For this to happen, leaders themselves have to be candid. The advice for leaders is to get out in front of the crisis very early on with clear communications, both internally and externally, which will build confidence and credibility with all the constituents.
7) Go on the offence, focus on winning now. After the crisis is over, go all out to win the market rather than wait & see what is going to happen. Try reshaping the market through your actions. Visionary leaders should make good investments in a downturn when competitors pull back their investments. They should fine tune their strategies for the future course of business. This is a good opportunity for them to place their businesses ahead of competitors.
George concludes that a crisis may be a defining moment for a leader. It could make or break a leader. Today nobody remembers Richard Fuld as a leader who painstakingly built Lehman Brothers to glory over thirty years but as a leader who presided over the demise of the company. Same as true of Satyam's Ramalinga Raju. Raju was an icon in the Indian IT industry. He created a global company and also created more than 50000 jobs.But today, he is considered as a crook, a cheat who led Satyam to ignominious fall from top.So, George advises that leaders in the face of a crisis should never lose their sight of the true north, their moral compass.
While both books are well-written, Charan’s book is filled with more pro- business prescriptions whereas George’s reccommendations are more organization oriented.Both offer good insights on how leaders should re-orient themselves in the face of a crisis.
But for those who have read Charan’s earlier book, Every Business Is A Growth Business, (coauthored with Noel M.Tichy and Charles Burck)the contentions given here might look a little antithesis. In that book Charan wanted to convey the message that every business can grow at all times by redefining the market boundaries or enlarging the pond one fishes in or by looking at market segments adjacent to the current business. They called it “Strategy from Outside-in”. As they stressed that “In the outside-in company, the key word is need, not product. Its people are not focusing on getting half a point marketshare; they are totally immersed in the minds of customers, looking for ways to expand demand.” Doesn’t the same strategy apply in tough economic situations when demand falls? And is cash conservation to be done only when things are tough in the marketplace? T.J.Rodgers (Chairman of Cypress Semiconductors) et al in their book No Excuse Management (1993, Currency Doubleday, New York) said, “The seeds of destruction are sown in good times, not bad times”.
Gorge's book doesn't contain an index which creates problems for the research oriented readers who would like to refer back at a later date.
About The Authors
Dr. Ram Charan is a highly sought after advisor to businesses and many chief executives and a prolific writer on business and an award-winning teacher. He has helped boards and top executives of a number of companies like GE, Novartis, Dupont, Honeywell, Bank Of America, Home Depot etc on strategy sessions, successions, self-evaluations, and CEO compensation. He has served on the National Association of Corporate Directors’(NACD) Blue Ribbon Commission on Corporate Governance. He is a director on the boards of Austin Industries, Tyco Electronics, and Emaar Manufacturing in India. He has won a number of Best Teacher awards from many institutions like Northwestern & GE’s Crottonville Institute. He was rated as one of the top ten resources for in-house executive development programmes by Business Week. Dr.Charan has written a number of best-selling books like What The CEO Wants You To Know, Boards At Work, Leaders At All Levels: Deepening Your Talent Pool to Solve the SUCCESSION Crisis, What The Customer Wants You To Know etc and co-authored Every Business Is A Growth Business(with Noel Tichy and Charles Burck), Execution and Confronting Reality(with Larry Bossidy).He is based in Dallas, Texas.
Bill George
Bill George is Professor of Management Practice at Harvard Business School, where he is teaching leadership and leadership development along with several executive education programs. Prior to this,Mr. George was Professor of Leadership and Governance at IMD International in Lausanne, Switzerland and Executive-in-Residence at Yale University’s School of Management
His previous three books, True North: Discover Your Authentic Leadership, Finding Your True North: A Personal Guide, and Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value, were best-sellers. Mr. George was and Chief Executive Officer of Medtronic from 1991 to 2001 and also Chairman from 1996 to 2002. Under his leadership, Medtronic's market capitalization grew from $1.1 billion to $60 billion, averaging 35% a year.
Mr. George also serves as a director of ExxonMobil and Goldman Sachs, as well as Carnegie Endowment for International Peace, World Economic Forum USA, and Guthrie Theater.
Note: The Review Of Ram Charan’s Leadership In The Era Of Economic Uncertainty was initially accepted for publication by SCMS Journal Of Management but was told later that it will not be published.
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