Guru Speak Ram Charan -
"YOU CAN EITHER RIDE THE WAVE, OR GET TRAMPLED"
Old companies are dealing with
destruction and not disruption
Ask Ram Charan, what's bothering
global CEOs these days and the renowned consultant says, “earlier it used to be
execution now it's just one thing -disruption.“
As the troika of rising structural
uncertainty, increasing complexity and new business models create havoc with
industries, CEOs face the challenge of not just keeping the engines running but
also looking out for the unfolding market disruptions. Charan, who has just
published a new book called The Attacker's Advantage, talks to CD about the
impact disruptive forces will have on businesses and how to be future-ready.
Edited excerpts:
Why are industries disrupting at such a fast pace?
It is no longer just disruption; it
is destruction and creation. When Clayton Christensen talked about disruptive
innovation, he saw people come and get the lower end of the market and then
disrupt the industry. Now, all industries are being actually destroyed not
disrupted. So Schumpeter's destruction and creation is now in full swing. In
1800s, the internal combustion engine created more jobs before the old jobs got
destroyed. Today, this destruction is not creating enough jobs to compensate
for the lost jobs. And no industry is going to escape.
What is this structural uncertainty you talk
about?
There is a difference between
operational uncertainty and structural uncertainty.Operational is about how
many rooms can you fill in a hotel in a month -it will not be 100%. So we now
have mathematical models that do the optimisation, decide what should be the
pricing of the hotel room by the day, by the week. We know the demand will
fluctuate but you make the best pricing decisions. They give 50% discounts on
the weekends and that is the operational uncertainty. You know how to manage
that.
The structural uncertainty is that
the total demand for a certain kind of hotel is eliminated.For example, the
demand for Polaroid was eliminated, and Kodak got eliminated. That's structural
uncertainty. Increase in the production of Shale gas and decline in usage of
raw material by China in building has caused a bend in the road -it is a
structural uncertainty, it is going to be here for years. It is structural
because the forces now at work can alter the existing structure of your market
space or your industry, changing the complete landscape or even making it
obsolete. These forces are long-term and ir resistible. You can either ride the
wave, or get trampled.
Indian CEOs face uncertainty, whether its demand
related or due to regulations or global factors. What do you need to lead in
such times?
First thing the CEO's got to do is
set a practice every week and ask his people and outside people what external
change they visualise over the next two years. Just see the world through their
eyes. By doing it every week, you are expanding your visualisation through the
people who can see external catalysts driv ing the change. The idea here is the
perceptual equity. You build perceptual equity as an in stitution so long as
you live and the company lives and out of that you get the patterns coming in.
Second thing, you look for catalysts. Catalysts are hu man beings, not
companies. Steve Jobs was a catalyst. Larry Page is a catalyst.
I have a feeling that Anand Mahindra
in India is a catalyst in the auto industry. In early days, Sunil Mittal was a
catalyst. In Indian telecom, Mukesh Ambani could well be the catalyst, or he is
perceived that way, whether he succeeds or not is to be seen.
You search for those human beings
and see how driven they are, how practical they are, how risk-taking they are,
and you do it every six weeks or eight weeks. Take off half a day, get your
trusted people, insiders and outsiders and visualise if this catalyst's play
turns out to be true, how would that change the game.
Will it destroy the industry? Will
it destroy the company? Will it lead to consolidation? Will it create a new
game or a new model? Acknowledge that the new game is very different. In such
situations, it's not advisable to mix the old game with the new game. Then you
can go on the attack, master these new trends. Start creating a path that you
force others to defend you. Amazon forced Walmart to defend. Starbucks is on
the attack; it will force Dunkin Donuts, it will force McDonald's. You argue
that seizing the attacker's advantage is not the same as seeking new ways to
use your core competencies.A large part of core competencies will become
irrelevant. What was the core competency of Borders and Barnes and Noble; it's
irrelevant. The two guys, Flipkart and Snapdeal they have to develop their
own logistics, the old logistics model just won't work.
What are the new business models which are coming
up?
If I just keep the government
influence part aside, the new game is to use algorithms to figure out a
sustainable business model and scale up very fast and reduce prices. You cannot
create barriers to entry. This game is not for the wimps. But if you don't do
it, the penalty is death or near death for old companies. If the industry is
disrupting, you can survive. But in destruction, you don't survive. And it's
industry not just the company, and even the related industries, like the music
industry.
How does the playbook run when a traditional
company makes a choice of being an attacker?
The first thing is that they have to
see and acknowledge the reality. They should ask the question: does no change
take you to near death? If this is what you see, you move. You accept old core
competence could be irrelevant, at least some portions. And look at from
outside-in and not inside-out.Start creating a new path. That's large scale
entrepreneurship.
When an established company makes a choice like
this, how do you take the old organisation along?
You don't. You create a new
organisation with a new leader and you gradually pull people you need. The new
leader will create a new business model that's different, where the competence
required is very different.
What is required of an attacker's mindset?
Confront reality, have courage, and visualize. Number two: select people for
the new game. Most likely outsiders. Number three: pilot the idea that you can
scale up. Build new core competence, new KPIs, new business models. Learn how
to scale fast. Change the board.
By Vinod Mahanta
CDET20Mar15
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