Start with Consumers
S+B: The message that “not everything has to change” seems almost counterintuitive for a book about change. How do you distinguish temporary swings from truly significant environmental disruptions?
CHARAN: Always start with the end consumer, and see if there are shifts in behavior, and if the shifts are structural or cyclical. And then ask if this change really took place, how badly could it affect us?
S+B: You talk about customer mapping and demand-chain mapping. How does that work in practice?
CHARAN: Analysis and observation. Visiting stores. Being in the field. This is a lost art. Most cost-cutting companies don’t value the people who are good at this. Call five business schools on the phone. Talk to the marketing professors of first-year courses. And ask the question, What kind of fieldwork is required during the term?
Fieldwork is only part of what is sorely missing in the teaching. We teach management, we teach leadership; we do not teach business acumen. Political people have political acumen. We have to find a way to teach business acumen. Business acumen is the missing element in the whole leadership and management arena.
S+B: Can it be taught?
S+B: So it’s not something that has to be innate.
CHARAN: I coach, I teach. It can be learned.
S+B: Sometimes executives won’t confront reality; at other times, they leap headlong into illusory realities. Imagine this situation: A CEO comes to you and says, “We have this complicated supply chain. There’s a lot of money embedded in it. My leadership team is saying, ‘I’ve got to start thinking of China for manufacturing, India for knowledge work.’” How could she apply your business model framework to this situation?
CHARAN: The world today has become more competitive partly because of globalization, the Internet, and better factor costs in places like China and India. Iterating all three pieces of the business model should indicate what’s the reality for any given company.
Take, for example, a customer of your industrial business. He’s already moving to China. In five years, he’ll start product development there. And he’s beginning to search for Chinese suppliers. Your iteration of the model should demonstrate that you cannot meet your financial targets without being there, or in an equivalent market.
But this is an intellectual exercise. It won’t help you confront reality unless people who really know China are part of the exercise.
S+B: Would you say the majority of companies engage in full appraisals of their CEOs, or is that still a rarity?
CHARAN: Some do, but most, not yet. It’s really hard for directors to do full-scale evaluations. Most will do selective evaluations. This is evolving. This is the finest of fine judgments. In addition to ethics and integrity, you’ve got to start backward from the fundamentals and the results. Not just the annual goals, but the fundamentals that drive the situation of the company and its success. You have to look at the quality of the different areas.
S+B: An alarmingly high percentage of companies don’t assess talent at all.
CHARAN: They go through the motions and process. But getting to the precise substance requires leadership skills.
S+B: What’s hard about it?
CHARAN: Many leaders have come from staff functions, consulting firms, and business schools and are “quant jocks.” They’ve never really experienced sustained leadership over time, in which they learned the hard lessons of selecting, calibrating, and retaining great talent. The business schools really do not teach how to select people.
S+B: You mention a company’s “DNA,” its “genetic code,” several times in Confronting Reality. Is this just a metaphor?