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Published: February 28, 2006

 
 

Sharpening Your Business Acumen

This assessment is often qualitative, rather than quantitative. And uncertainties will be built in — after all, no one knows what the price of oil will be in a year, or in five years. A company’s strategic choices are made today, without the benefit of knowing the future. Leaders have to be comfortable making decisions with unknown factors; survival depends on those choices producing viable outcomes whatever may happen.

The ability to construct and act upon the mental model of the big picture requires plenty of practice. The essence of the skill is to find patterns from among a wide variety of trends and to posit the missing ingredients that could catalyze convergence. Many great leaders began to practice this exercise when they were younger, in less complex contexts, and over the years they have developed the requisite skills and judgment.

One simple way to begin is by asking yourself a series of six questions, exploring the ideas with colleagues and peers:

  1. What is happening in the world today? 
  2. What does it mean for others?
  3. What does it mean for us?
  4. What would have to happen first (for the results we want to occur)?
  5. What do we have to do to play a role?
  6. What do we do next?

What is happening in the world today?
The most significant trends affecting business transcend company and industry. They cross borders and infuse all areas of civil society. For example, the Internet has made it easy for corporations to link operations in Manhattan and Mumbai, and for consumers in St. Louis to purchase goods sourced from Shanghai. It is also exposing villagers in India to Western brands such as Dell and Levi’s.

India’s rapidly growing economy is another important trend. Its boom in IT-related software and services is well known, of course, but many executives are also watching carefully as the government gradually opens up other sectors of the economy, such as insurance, retail, and telecommunications, to foreign investors.

But will that day come? There are other trends to consider. Political forces are pressuring the Indian government to keep controls on the retail sector, to protect the livelihoods of family-owned mom-and-pop stores. This political pressure has weight: In 2005, it effectively blocked the government’s plans to divest a portion of its ownership in Bharat Heavy Electricals Limited, a successful Indian manufacturer of power generation and transmission equipment. Thus, participation by foreign companies in retail, despite the government’s stated intention, is no foregone conclusion.

As this example demonstrates, trends that may at first seem disparate are not unrelated; they must be considered in combination. Executives must learn to fill in the gaps and to iterate this mental process until a complete picture comes into focus. And the way to do that is not only to consider the direct effects of change on an industry and a company, but also to rethink the changes through the lenses of other industries and other players.

What does it mean for others?
Richard Harrington was able to see the big picture for the newspaper industry sooner than most because he saw the industry from the outside in. He reframed his view of the trends affecting the industry by putting himself in other people’s shoes.

For example, Mr. Harrington recognized that the typical classified advertiser was finding new outlets like eBay for used goods and Monster.com for job listings. And it would only be a matter of time before national consumer product corporations would also shift their advertising online.

There are still other perspectives that newspaper executives might consider. The capital markets can move against a company whose strategy is not positioned for moneymaking; valuations can be affected sharply and quickly. For instance, several money managers publicly implored Knight Ridder to seek a buyer in November 2005, saying they were frustrated with its performance.

 
 
 
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Resources

  1. Kenneth R. Andrews, The Concept of Corporate Strategy (Dow Jones/Irwin, 1971): Classic strategy manual, still relevant in a turbulent world.
  2. Larry Bossidy and Ram Charan, Confronting Reality: Doing What Matters to Get Things Right (Crown Business, 2004): How to define an ongoing, external-world-savvy strategy.
  3. Ram Charan, “Boardroom Supports,” s+b, Winter 2003: How governance and leadership development can align. Click here.
  4. Randall Rothenberg, “Ram Charan: The Thought Leader Interview,” s+b, Fall 2004: On building better executives and continuous transformation. Click here.
  5. Jack Welch with Suzy Welch, Winning (HarperBusiness, 2005): Guide to acumen in practice.
 
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