Highlights by David Willden
Written by Larry Bossidy and Ram Charan
Confronting Reality – Highlights
Larry Bossidy was the highly successful CEO and board chairman of Honeywell International. Ram Charan is a world famous business guru, author, and personal consultant to select CEOs.
Larry and Ram state that business executives like to think they are practically minded but they really live in a dream world – hence the title of the book – “Confronting Reality.”
They discuss the importance of adjusting your business plan based on a newer and changing business environment. Reality is, traditional business models are becoming obsolete. To believe that things will return to normal is wishful thinking. To learn and confront reality is critical. “Realism starts with your own behavior, using the business model as your primary tool for teaching people to confront the realities that affect their areas and organizational levels.” Making seat-of-the-pants adaptions to compete won’t work in today’s economy as opposed to the past. The challenge is to figure out how to make money in the new environment, and then to make it happen
There are several important questions, referred to in Confronting Reality, that you need to ask yourself, to determine whether or not your business model needs to change:
- Do you have reliable ways to spot and respond to changes in the marketplace?
- Has the way to make money changed in your industry?
- Do you know who is successful at making money in your new environment and why?
- What are the key reasons are for those who are making money and those who aren’t and why?
- What you should stop doing?
- How do you make the changes needed to be successful?
Six Habits of Highly Ineffective People
Larry and Ram identify what they call, the “Six Habits of Highly Ineffective People:”
- Filtering – Leaders receive filtered information – so they generally don’t have a picture of reality.
- Tuning out – Some leaders only want to hear what they want.
- Wishing – Leaders can want something so bad that they aren’t objective.
- Timidity – Employees are fearful of sharing anything that the leader doesn't want to hear.
- Excessive commitment – Being committed to a goal is important, but too much emotional investment in an initiative prevents leaders from being realistic.
- Value myopia – some leaders make promises to investors that aren't realistic, and then wreck their businesses striving to meet the promises.
- Understand global trends. Examples of global trends includes:
- Manufacturing costs: Manufacturing is quickly moving to areas of the world where labor costs are low
- Telecommunications: internet, televisions, cell phones, and other telecommunication technologies are expanding quickly throughout the world.
Because of globalization, capital was more abundantly than ever before. Until the recent recession, getting funding for new ideas was easier than ever to get. A key reason for the recession was the false bubble that developed from an over extension of lending and borrowing. That having been said, those with compelling ideas have access to more capital across the globe than ever before.
Are You Ready for the New Reality?
Business strategists need to also focus on the new reality. Key questions include:
- Is your industry still profitable and growing?
- What is the real demand in your industry?
- How many new suppliers are there in your industry?
- How long before your products become commodities?
- What are some of the inherent weaknesses in your industry?
- How do your products and services substantively differ from your competitors?
- What technology changes will impact your organization?
Three Areas of Analysis
Larry and Ram emphasize that there are three areas of focus that must be reviewed carefully:
- External realities: Put your firm, your competitors and your industry under a microscope. Look deeply for threats and opportunities. New business models based on new rules were developed and became powerfully players in their industries. For instance, Michael Dell developed a new computer manufacturing and sales
- Internal activities: A new business plan needs be established based on an in-depth understanding of the organizations capabilities.
- Financial targets: Financial targets should be developed based on a firm understanding of your firm and its products, your competition, your industry, and the overall economy. Run away from spin. Top leaders like Warren Buffet speak in simple, easy to understand language. What counts is not spin but in depth understanding.