Ram Charan is a true thought leader in business and has been advising CEOs and boards of companies around the world for decades. Subtitled”How your company really worksThis book is one of the first books by this prolific author, yet it is still highly relevant today. It is partly a “textbook”, explaining business fundamentals and the basics of business financeand advisory party, addressing how to implement sound business and leadership practices. To be consistent with this fork, I have segmented this summary according to book sections.
Section I – Business Acumen: The Universal Language of Business
Charan feels that the best CEOs are like the best teacher he’s ever had and that they “are able to take the complexity and mystery out of business by focusing on the basic fundamentals.” The most successful business leaders focus on the fundamentals and have a keen sense of how a company makes money.
Everything in business stems from cash generation, margin, return on assets, growth, and customers; and true business acumen requires understanding these building blocks to make money. Charan proceeds to address these concepts and others (such as inventory turns, investment capital, fixed and tangible assets, profit margin, and cost of capital), giving a good overview of these business fundamentals using real-world examples.
Section II – Real World Business Acumen
Once business leaders understand the aforementioned fundamentals, they should be able to apply them in the real world. Charan writes that “The world has complexity but leaders provide clarity.” This business acumen helps a CEO pick the three or four business priorities that will retain customers and achieve all the important money-making goals. A business priority defines the most important action to be taken at any given time, as well as the appropriate response to the unexpected…whether it be a crisis or an opportunity. Charan stresses that many business leaders fail because they feel overwhelmed or indecisive. Some don’t set clear priorities or lose focus, especially if their judgments are challenged. If the leader doesn’t set priorities, keeps changing his mind, or miscommunicates those priorities, the entire organization loses energy.. If, on the other hand, you set business priorities and communicate them clearly and frequently, people will have a better idea of what to do. If you choose the “right” set of business priorities, the business will prosper.
Section III – How to do things
Charan writes that CEOs know that, in business, there are quarterly milestones but no finish lines. Leaders have to deliver results day after day, relentlessly and consistently over a long period of time. Delivering results is what energizes an organization, builds trust, and generates the resources to keep going. So once the CEO has determined three or four business priorities, how will they actually get the job done? Charan suggests that a good leader will harness the efforts of other people, expand his personal capacity, and synchronize his efforts to get results. Leaders who consistently deliver results recognize what people do best—their skills, attitudes, and aptitudes—link business needs with people’s natural talents, and take the time and effort to place people where their strengths lie. have the biggest impact. CEOs have a lot of knowledge about people and the organization to align energy.
Charan knows that business excellence alone is not enough. A CEO must think like a business person first, with a perspective that expands beyond a functional or departmental view to a total business view. So, as a CEO, how deep is your understanding of business fundamentals and how well do you apply them? How well do you prioritize business objectives so that resources and talent are best utilized? What is complex in his company? And how can you, as CEO, help provide clarity and focus to reduce complexity and achieve key business objectives? These are just some of the questions Charan challenges CEOs to ask.
