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Saturday, October 09, 2004

Leaders must learn to confront reality.

Ram Charan, has just written a new book with Larry Bossidy "Confronting Reality: Doing What Matters to Get Things Right." The book is infused with the famous candor of coauthor Mr. Bossidy, but even more, it bears the imprint of Ram Charan’s deep, diversified, and worldwide experience. Ram Charan expands on his thoughts in this interview. There are four component questions to ask about your organization: How should your strategy transform? How should your operating activities transform, whether or not you have a shift in strategy? To accomplish a transformation, what shift in people and leadership is necessary? And what shift in organization processes must you facilitate?These are the four components of how to make money: strategy, operating activities, people, and processes. When you confront reality, you may have to make changes in one of the four, two of the four, three of the four, or all four. To confront reality, you start with the selection of the mix of financial targets. You see how they link to the external environment. If those targets are not being met, you ask the question, “What’s going on in here?” A leader has to determine when not to change, when to change, and to what extent to change. Then you determine which of the four internal organizational components have to be changed, and in what sequence, to meet those goals. Michael Dell personally told Larry that he didn’t have a vision: He was driven to it. His singular goal was survival. That was it. “How do I survive against these big guys?” And out of that came a philosophy, a concept. But that meant a huge amount of transformation involving the whole supply chain, which his competitors didn’t get. He wasn’t starting with a “strategy.” Operating activities were forcing the strategy. He’s saying, “I’m a mass guy; I’m going to sell direct and be the lowest cost.” But saying it does not get him anywhere. He needed to transform the operating activities — the supply chain. Take, for example, Joe Tucci of EMC. He quickly recognized that a single-trick pony — the high-technology, high-priced, high-margin business model — had become obsolete and was no longer differentiated after the bubble burst in 2001. He tenaciously iterated many times the three components of his business model and changed all four pieces of EMC’s internal activities. Results are impressive. The critical qualities of leadership today when the business landscape is becoming more complex are:
-The first one is sorting out complexity,Because of the nature and number of variables and the structural changes in business
-The second is managing external constituencies.
-The third is you must be a social architect. You have to have those three.
-And of course, there’s a fourth: tenaciously mastering the business model

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