Ram Charan Interview

After “Execution”, Ram Charan has just written a new book with Larry Bossidy “Confronting Reality: Doing What Matters to Get Things Right.” Excerpts from his Strategy+Business 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, Whats 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 didnt 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 didnt get. He wasnt starting with a strategy. Operating activities were forcing the strategy. Hes saying, Im a mass guy; Im 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.

When you understand your core business model, you can determine where there needs to be and where there doesnt need to be wholesale change. For most companies, the key processes are not going to go through major change. They are not adaptable. No matter what Dell does, the supply chain will still be needed. Now matter what Wal-Mart does in its business model, the linkage with suppliers will always remain a core competency.

Economist on Car Industry

The Economist has a survey on the world’s automobile industry, one which “makes nearly 60m cars and trucks a year, and employs millions of people around the world. Its products are responsible for almost half the world’s oil consumption, and their manufacture uses up nearly half the world’s annual output of rubber, 25% of its glass and 15% of its steel. No wonder the car industry accounts for about 10% of GDP in rich countries.” But it is an industry which is undergoing change. From an editorial in the same issue:

The car business is ripe for revolution. As our survey of the industry in this issue describes, it has chronic problems. Once it epitomised 20th-century capitalism, but today it looks poorly equipped to thrive in the 21st century, or even to survive in its present form. Many of the world’s biggest car firms are destroying wealth rather than creating it. About half of the industry is regularly incapable of earning a decent return on its invested capital. Although it still accounts for about a tenth of economic activity in rich countries, it has been virtually shut out of stockmarkets for the past 20 years, accounting for a mere 1% of total market capitalisation.

There are plenty of ideas knocking around for how the industry might transform its fortunes. Ambitious mergers are no longer regarded as the answer, especially after the disastrous acquisition of Chrysler by Daimler-Benz in 1998. Instead, the focus is on ways to adapt the mass production system invented by Henry Ford to the realities of today’s markets. All car firms have learned from Toyota how to use just-in-time, lean production to make cars much more efficiently. A continuous flow of parts arrives from the other side of the world (increasingly from China) just when they are needed. But, oddly, the finished cars then sit in parking lots for up to 90 days before they are sold, usually at a discount because they are not the colour or do not have the optional extras that the buyer wants. The whole industry is straining to find ways of making cars to order rather than producing them for inventory.