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 / Fall 2004 / Issue 36(originally published by Booz & Company)


Ram Charan: The Thought Leader Interview

CHARAN: It’s real. I can even define it for you. There are two simple components. One is the innate methodology of decision making — what information is valued, what criteria are used, what risks are assumed. The way a domestic auto company makes decisions on product portfolio selections is different from Toyota’s way. So I, at 22 years of age, come into a company, I’m bright and ambitious, I learn this.

S+B: What’s the other one?

CHARAN: The second one is the people and organizational equation. How people get selected, retained, and made to exit. And the political/analytical process in allocating resources.

S+B: Is a company’s DNA fixed and unchanging?

CHARAN: Jack Welch changed the DNA of GE. Nobody could get into the top 600 people who could not execute. None! Not so before him. With Jeff Immelt, that code is already given — he’s not altering that. But now, people in the top 600 will not move on unless they show in their makeup how to grow a business. And he’s going to make the change. You will see that gene pool changing.

Change Initiatives

S+B: You believe that “initiatives” are important catalysts to large-scale transformation. What is an initiative, and why is it so significant?

CHARAN: Powerful leaders don’t procrastinate. After you’ve articulated your business model, and you understand which of the four components of the company need to change, and you’ve determined the sequence by which you are going to take the company to the next level — whatever that next level is — you need a way to make the change real for the whole company, not just a single piece. An initiative is a large program that aims at that objective.

For example, let’s say you’ve determined that your strategy will involve making the company more customer focused. How do I get this strategy in the DNA of the company? We ought to first change the reviews of the strategy and the budgets and the people. In the strategy reviews, you say, “We’re going to have a whole day for each unit, but you’re only allowed to have five pages for the presentation. And the questions will be limited to customers and segmentation.”

We did this at a company. The first guys were surprised that we actually did what we said. Within two weeks, the guys in the next division already knew what we were going to do. Then we did the same thing in budgeting. Now we are in the second round, and we have seen how the company has changed. Resource allocation has changed, costs went down, people selection changed. In some divisions, profitable growth has gone from single digits to double digits. It’s now getting into DNA, in only three years. The energy went right through the roof. So these initiatives then expand the capacity of the organization for change. They see the success, they see the procedure, they see the benefits.

But, the CEO has to be the one involved, engaged, measuring, rewarding.

S+B: Why?

CHARAN: Because it is his leadership job to change the working of the whole social system. It is his initiative to make the organization flexible for change.

S+B: I can imagine a lot of chief executives saying, “Hey, I don’t have time for that. I’m dealing with the board. I’m dealing with our customers. I’m dealing with our suppliers. I’m answering to Wall Street. I don’t have time to be den mother for 10,000 people.”

CHARAN: Then he needs to rethink his job, appoint a COO, and restructure his job.

S+B: In Confronting Reality, you mention some of the iconic business figures of past eras, people who were absolutely right for their times. Would you be willing to venture a guess about who the iconic management figure for this era might be?

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