Ram Charan on How to Make Smarter Decisions
Think your job of running a company has gotten tougher over the years? You'll find some sympathy from Ram Charan. The renowned business strategy expert and best-selling author says making business decisions has never been more difficult than it is right now.
In a Q&A in the November issue of the Harvard Business Review, Charan breaks down the best decision-making strategies of the most successful CEOs, based on his experience coaching the heads of huge corporations like GE, Verizon, and Bank of America over the past 35 years. Much of what he says applies to entrepreneurs as well.
"Getting to the right answer is tougher these days. It's not just the greater number of variables to consider; executives also need to make subjective judgments about highly ambiguous factors that are moving targets," he says during the interview with HBR. "The usual competitive analysis doesn't work well when technology keeps erasing industry boundaries and the pace of change is so fast that you can't wait for things to stabilize."
You're now being judged by "the court of public opinion" more than ever before, and that includes societal watchdogs and the media. With technology and the unstable economic climate ushering in this new pressure, CEOs need to make accurate decisions with less information more quickly--without sacrificing profits or tarnishing its image through bad press that goes viral.
Read on for his three tips to make better decisions, stay ahead of your market, and keep up with customers.
Adapt to the changing customer.
Charan says the best CEOs can can sift through boatloads of information and zero in on the precise points that matter--and they can do it while always thinking of their customers. "They cut through the complexity to get to the heart of the matter, without getting superficial. And they do it without losing sight of the customer," he says.
Years ago, Charan said a company's CEO and board directors were trying to figure out a way to battle online music service Napster, which was killing the profits of the company's most important division. After multiple people discussed petitioning for a new law to ban Napster, Charan said one director spoke: "No law is going to prevent social change."
"He recognized that the consumer was being liberated and the industry was about to go through a radical shift," Charan said, explaining that CEOs cannot make decisions that go against a changing consumer, but rather go with them.
Make decisions from the ground.
CEOs should not make wide-sweeping decisions based on generalizations, Charan says. The best CEOs make consider options that are "specific and concrete." Instead of "thinking from an altitude of 50,000 feet," bring yourself "down to 50 feet."
"As their thinking gels, they pose incisive questions, ask for quantitative analyses, solicit more information from inside and outside the company, and bounce ideas off a small network of trusted people for a dose of reality," he says. "From that they draw inferences and thread ideas together to reach what they consider the right solution."
Get back to the future.
Charan says that every great CEO uses what he calls "perceptual acuity," which is the ability anticipate future trends, technology, or products. He recalls Verizon's CEO Ivan Seidenberg and his early investment in fiber optics. "It was a huge and unpopular move at the time, but it was informed by a deep understanding of the external landscape and technology. Seidenberg had a realistic view of where the market and competitors were going and saw that Verizon could not put video on its network and run fast enough against the competition," he says. "So he made a big bet." Charan says the lack of perceptual acuity will kill a company. Your goal is to "see how, or how fast, the game [is] changing."
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