A globally celebrated advisor to executives at top companies, Ram Charan specializes in practical solutions to the most vexing problems facing industries. For the last four decades, he has worked with CEOs, boards and business unit heads at such companies as General Electric, Bank of America, DuPont, MeadWestvaco, Novartis, EMC, 3M, Verizon, Grupo RBS, and the Tata Group. Jack Welch, GE’s legendary former CEO, says Charan has “the rare ability to distill meaningful from meaningless and transfer it in a quiet, effective way without destroying confidences.”
Named by Fortune magazine in 2007 as the “most influential consultant alive,” Charan is a prolific author of business books—23 since 1998. They have collectively sold more than 3 million copies in more than a dozen languages. “Execution: The Discipline of Getting Things Done” (co-authored with ex-Honeywell CEO Larry Bossidy) was on The New York Times Best Seller list for more than 150 weeks. It, and two other Charan books, were Wall Street Journal bestsellers.
Charan’s most recent book is titled ‘The Attacker’s Advantage: Turning Uncertainty into Breakthrough Opportunities’ (Public Affairs, 2015). In it, Charan asserts that structural uncertainty—driven most of all by digital technology—will continue to shake even venerable, long-established companies and industries to their foundations. Leaders and their businesses can thrive only if they know how to spot the very beginnings of change—and harness it to their advantage before anyone else does.
Charan discussed these challenges in a recent interview with editors of TCS ‘Perspectives’.
TCS: One of the tenets of your book is that taking control of uncertainty is the fundamental leadership challenge of our time. Why is this so important today?
Ram Charan: Structural uncertainty in every industry is happening much more frequently than ever before. It is quite different from the seasonal and even cyclical uncertainty that companies have learned to manage. Structural uncertainty can come from surprising places. It can explode the existing structure of your marketplace and your industry, and it can eliminate companies that do not anticipate it and deal with it well.
Leaders must expect uncertainty. But even more, they need to know how to take advantage of it.
Human beings create almost all structural uncertainties. And the seeds of that uncertainty are there, in the present and the past, but they are very difficult to detect. You must focus hard to see it and understand who is behind it. You must anticipate the forces that might enable these seeds of uncertainty to take hold and become big and unstoppable.
One of the classic examples of this is the structural uncertainty that Steve Jobs and Apple created for Nokia. In the early 2000s, Nokia was the No. 1 mobile phone maker in the world and had patents on its handsets. Before it unleashed its first iPhone in June 2007, Apple had been filing patents on it, in fact more than 200.
Despite the publicly available information, the Nokia leadership team just didn’t believe a computer company could be a threat to their cellphone business. As a result, Nokia didn’t prepare itself quickly enough for Apple’s onslaught. Had Nokia been prepared, it would have recognized that change was coming and positioned itself to ride the change rather than be engulfed by it.
TCS: Which structural uncertainty presents the biggest single threat to established companies?
Charan: Today, the most unstoppable uncertainty for most legacy companies is the onslaught of digital companies that use algorithms. ‘Born digital’ companies—Google, Facebook, Amazon—are experts in algorithms, which are sets of rules that tell computers what to do with data that has been converted into numeric digits. Algorithms, and their related software, can process huge amounts of data and predict the outcomes of decisions with multiple variables at lightning speed.
This is the new game. What I call the algorithmic revolution is as important to shaking up industry structures as the internal combustion engine was in the mid-1800s. No company will escape it. Companies that have these mathematical capabilities will thrive; those that delay or rail against the new reality will be punished badly, as Nokia, Motorola, and Kodak were.
TCS: So do legacy firms have an inherent disadvantage over the born digitals?
Charan: The greatest disadvantage of legacy companies is their mindset and their lack of courage to do what they need to do. They actually have an advantage that born-digital companies lack: domain knowledge and the expertise needed to service the customer. Domain needs are serviced best by legacy companies; it is much harder for born-digital companies to do. Some leaders of legacy companies understand this and use it to their advantage. Others never will.
TCS: In ‘The Attacker’s Advantage,’ you talk about five skills you believe leaders must possess to be able to see the big bends in the road: perceptual acuity, a mindset to see opportunity and uncertainty, the ability to see a new path forward and commit to that new path, adeptness in managing the transition to that new path, and skills in making an organization steerable and agile. Can you say a little bit about each one, starting with perceptual acuity?
Charan: Because people create the future and it is easy and inexpensive to access the internet, more than 7 billion people today can express themselves, take action, create innovations, and shake up an industry. This means that all companies must build the ability to see over the horizon, and predict which of the existing seeds of uncertainty will take hold and reshape the future. We have to practice this perceptual skill constantly so it will improve.
TCS: What about the second skill: the mindset to see opportunity and uncertainty? What kind of mindset is necessary?
Charan: Uncertainty can be a negative if your mindset is pessimistic. The best leaders see uncertainty as a great opportunity. The smart phone was a great opportunity for somebody, and a problem for somebody else. So the question everybody should ask is: I can see the uncertainty, but if I were not in this business how would I make money from it?
TCS: Your third element is the ability to see a new path forward and commit to it. What are the most important elements to doing that?
Charan: A business exists to discover a customer’s need, and fill it. Leaders must discover how an uncertainty will reshape that need, and find a new path to filling it—something that will create benefit for the customer and make money for the business. The new path might require designing and delivering a current need in a new way, or filling a different need altogether.
Uncertainty changes the landscape, and that landscape might create a new need, or maybe a different need, or maybe the same need addressed in a different way. A CEO who cannot see this or respond to it will have difficulties.
TCS: And what about the fourth skill: adeptness in managing this transition to the new path? In your book, you talk about having two tracks: one, to make sure you do not mismanage your current business, but the other, to build your new business at the same time.
Charan: This is the new challenge for most CEOs. First, they have got to realize how fast their existing business will decline if they do not do digitization and algorithms. If they do not move quickly, they will have nothing left, or will have so little left that they cannot come back. They need to see how quickly they must add these capabilities and figure how they can get the resources to fund it. They also must manage the existing business so they do not accelerate its demise.
Now the positive news is that legacy companies know their customers and have an embedded base. They must simply find a way to create a need that they can satisfy, and redefine the end-to-end customer experience. Before, they needed only to produce a product and use the linear system of distributors, wholesalers and other channels to get it to market.
Now you have got to think imaginatively about the whole experience of the customer and the other players involved from start to finish. The companies that can do that—and that use the power of digitization and algorithms—are going to make it.
TCS: So let us talk about the fifth skill: making an organization steerable and agile.
Charan: Here is an analogy: Cars and airplanes are steerable, and they are designed that way. But most companies steer their strategies and goals only once a year, as if the sun rises on January 1st and goes down December 31st; in between is a lot of rigidity, especially when it comes to budgets and people.
Companies must be able to respond more quickly within their yearly strategic planning cycle to changes that take place on the outside—in how they allocate budgets, how they define what people do and design incentives for them, and in the key performance indicators they use. They must have the levers in place that let them steer quickly when needed.
TCS: You mention in your book that it is a sin that the most talented people in a company often are not allowed to move from their division, product line, or function to other areas of that company that actually need them more, to make the company more steerable. Tell us more about that.
Charan: This happens a lot. And because of the fast exponential change on the outside, that rigidity is a negative. Big companies should not allow their most valuable employees to be locked up within divisions or business units. Key talent should be seen as a pool, and the CEO must be convinced to put policies in effect that make it easier to move that talent around, using either pull or push incentives.
At GE, under Jack Welch, top management would review their divisions twice a year. They knew where the top performers were, and they moved the talent when necessary. It was not up to the division heads. That policy has been in place for 35 years, and there is not much resistance because if one division head gives up a talent, he or she also gets one. It is not a net loss. They are giving and receiving.
TCS: Among big global companies, is GE fairly unique about that system and its ability to very quickly deploy talent across geographies and divisions?
Charan: GE has the best system, but Unilever also does it. They know the value of it.
TCS: On this topic of navigating uncertainty to uncover breakthrough opportunities, is there anything else we should think about?
Charan: If you ask people their opinion of another company or industry, they make very good observations, but they cannot see their own that clearly.
All leaders and managers need to look at their world from the outside in. Most of them have grown inside out. If you look at the world inside out, your lens has a very narrow scope. If you look from the outside into your business, your lens is broader. If you do not practice that, you will suffer.