 "Taking control of uncertainty is the biggest leadership challenge: Ram Charan")
Business leaders need competence in digitisation along with the imagination to find ways for mathematics to help them redesign the consumer experience, Ram Charan tells Ankita Rai
For too long the business world has been obsessed with the notion of building a sustainable competitive advantage. That idea is at the core of most strategy textbooks. But it's now rare for a company to maintain a truly lasting advantage. What are some of the other leadership challenges of our time?
Taking control of uncertainty is the fundamental leadership challenge of our time. In the last 10 years, the global landscape has become unstable. However, what's new is structural uncertainty. It is structural because the forces now at work can explode the existing structure of your market space or your industry, putting it at risk of being completely eliminated. These forces are long term. For those who are unprepared, the massive changes they bring are sudden bends in the road that appear seemingly without warning to obscure whatever future you envisioned for your business. There are instances of companies almost disappearing. For example, Nokia, Kodak, Motorola. They were all victims of the leadership not able to deal with structural uncertainty.
Is the digital revolution a root cause of this uncertainity?
Digitisation, algorithm and sophisticated software are the catalysts of change. Algorithms are dramatically changing both the structure of the global economy and the lifestyles of individual people. The others include digitisation, the internet, broadband mobility, sensors, and faster and cheaper-by-the-day data-crunching abilities. Companies that have the new mathematical capabilities possess a huge advantage over those that don't, even those that have been highly successful in the past. They are not just digitised - they are math houses, as I call them, and they are creating structural uncertainty for all industries and the companies within them. Google, Facebook and Amazon were created as mathematical corporations; they were, as some say, born digital. Apple became a math corporation after Steve Jobs returned as CEO.
This trend will accelerate. Legacy companies that can't make the shift will be vulnerable to digital competitors. Business leaders need competence in digitisation - at least enough to know the right questions to ask the experts, along with the imagination to find ways for mathematics to help them redesign the consumer experience.
At a time when competitive advantage can evaporate in less than a year, can companies afford to spend months crafting long-term strategy? How has the idea of strategy itself changed?
The greatest fallacy taught in business schools is to think about competitors. Companies should rather think about the customer.
The internet has lowered the barriers for entry. So you are going to have people coming into your industry that you have never heard of before. The whole industry is getting redefined. However, there are some long-term unstoppable changes that will happen. For example, you can easily say demand in China, India, Indonesia and Brazil will continue to grow. So accordingly you can plan your business roadmap.
Does this mean companies need to constantly evolve their offering and, in fact, cannibalise their own products before someone else does?
The key here is how often the behaviour of the consumer is changing. And more often her behaviour is driven by the internet and technology. Brands need to innovate and cannibalise their offerings. There is no relaxation. You need to keep innovating. Some industries are slow, some are fast. But change is happening. However, the shift does not take place on its own. You need a catalyst. That's what companies miss. The ability to see change ahead of others is a requisite leadership ability - I call this perceptual acuity. Given the ubiquity of the internet, the accessibility of mathematics, we now have lots of young people in universities, from Silicon Valley and Bangalore to Singapore and Israel, with tremendous information and connectivity at their disposal. Surely these emerging clusters of technology throughout the world will produce new catalysts who will make new breakthroughs.
How has all this impacted the relationship between boards and the CEO?
Leadership at the top is being redefined as boards take a more active role in decisions. Nowadays, the boards also take active role in CEO succession. They are getting more intrusive. In fact, more boards are also participating in the selection of a CFO or an HR leader.
In new age companies such as Amazon and Facebook, founders are the majority shareholders. But as the companies grow, it will change. Intel, for instance, has made a successful transition. The board is the leader at the company. At Microsoft, also, that transition has taken place. The Microsoft board plays a very active role in CEO transition and is also dealing with shareholders.
However, for all the advantages of increased board engagement, it can also create questions of authority. Therefore, companies should make sure that the right CEO is in place and potential successors are identified, directors are recruited who add value to root out board dysfunction.
THE CEO COACH
For too long the business world has been obsessed with the notion of building a sustainable competitive advantage. That idea is at the core of most strategy textbooks. But it's now rare for a company to maintain a truly lasting advantage. What are some of the other leadership challenges of our time?
Taking control of uncertainty is the fundamental leadership challenge of our time. In the last 10 years, the global landscape has become unstable. However, what's new is structural uncertainty. It is structural because the forces now at work can explode the existing structure of your market space or your industry, putting it at risk of being completely eliminated. These forces are long term. For those who are unprepared, the massive changes they bring are sudden bends in the road that appear seemingly without warning to obscure whatever future you envisioned for your business. There are instances of companies almost disappearing. For example, Nokia, Kodak, Motorola. They were all victims of the leadership not able to deal with structural uncertainty.
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Many leaders wait for uncertainties in the external environment to firm up before they react to them. Such deniers have blind faith in their core competencies and in the momentum of their established companies. In case of turbulent times, they focus only on the most immediate symptoms of shrinking margins and market share and fight back as they always have, typically by lowering prices, cutting costs deeply and improving service. This approach doesn't work anymore.
Is the digital revolution a root cause of this uncertainity?
Digitisation, algorithm and sophisticated software are the catalysts of change. Algorithms are dramatically changing both the structure of the global economy and the lifestyles of individual people. The others include digitisation, the internet, broadband mobility, sensors, and faster and cheaper-by-the-day data-crunching abilities. Companies that have the new mathematical capabilities possess a huge advantage over those that don't, even those that have been highly successful in the past. They are not just digitised - they are math houses, as I call them, and they are creating structural uncertainty for all industries and the companies within them. Google, Facebook and Amazon were created as mathematical corporations; they were, as some say, born digital. Apple became a math corporation after Steve Jobs returned as CEO.
This trend will accelerate. Legacy companies that can't make the shift will be vulnerable to digital competitors. Business leaders need competence in digitisation - at least enough to know the right questions to ask the experts, along with the imagination to find ways for mathematics to help them redesign the consumer experience.
At a time when competitive advantage can evaporate in less than a year, can companies afford to spend months crafting long-term strategy? How has the idea of strategy itself changed?
The greatest fallacy taught in business schools is to think about competitors. Companies should rather think about the customer.
The internet has lowered the barriers for entry. So you are going to have people coming into your industry that you have never heard of before. The whole industry is getting redefined. However, there are some long-term unstoppable changes that will happen. For example, you can easily say demand in China, India, Indonesia and Brazil will continue to grow. So accordingly you can plan your business roadmap.
Does this mean companies need to constantly evolve their offering and, in fact, cannibalise their own products before someone else does?
The key here is how often the behaviour of the consumer is changing. And more often her behaviour is driven by the internet and technology. Brands need to innovate and cannibalise their offerings. There is no relaxation. You need to keep innovating. Some industries are slow, some are fast. But change is happening. However, the shift does not take place on its own. You need a catalyst. That's what companies miss. The ability to see change ahead of others is a requisite leadership ability - I call this perceptual acuity. Given the ubiquity of the internet, the accessibility of mathematics, we now have lots of young people in universities, from Silicon Valley and Bangalore to Singapore and Israel, with tremendous information and connectivity at their disposal. Surely these emerging clusters of technology throughout the world will produce new catalysts who will make new breakthroughs.
How has all this impacted the relationship between boards and the CEO?
Leadership at the top is being redefined as boards take a more active role in decisions. Nowadays, the boards also take active role in CEO succession. They are getting more intrusive. In fact, more boards are also participating in the selection of a CFO or an HR leader.
In new age companies such as Amazon and Facebook, founders are the majority shareholders. But as the companies grow, it will change. Intel, for instance, has made a successful transition. The board is the leader at the company. At Microsoft, also, that transition has taken place. The Microsoft board plays a very active role in CEO transition and is also dealing with shareholders.
However, for all the advantages of increased board engagement, it can also create questions of authority. Therefore, companies should make sure that the right CEO is in place and potential successors are identified, directors are recruited who add value to root out board dysfunction.
THE CEO COACH
- Ram Charan is a business adviser and has spent the past 35 years working with companies, CEOs, and boards
- An alumni of IIT-BHU, he earned his MBA and doctorate degrees from Harvard Business School. He has served on the faculties of Harvard Business School and Northwestern University before pursuing consulting full time