Global Future


	June 16th, 2004

What the CEO Wants You to Know
Ram Charan
Crown Business, New York (2001)

In its most basic form every business is like any other business, from street vendor to corporate titan.

Book Review © Dr. Terry J. van der Werff, CMC

Ram Charan is one of the foremost consultants to corporate leaders in the world today, with a client list most consultants would give their eye teeth for.

He distills a lifetime of insight and wisdom into this small gem of a book! But don't let its size mislead you. This is a meaty book about the fundamentals that apply to every business, written in an engaging tone, with many vignettes to illustrate his points. The author convincingly argues business is the same for both street vendor and corporate titan. Each must:

	generate cash
	earn a return on assets
	grow profitably and sustainably
	satisfy their customers.

Each must also possess the ability to see the business as a whole, what Charan call "business acumen."

Without cash, a company cannot stay in business. Charan calls it the "company's oxygen supply," stressing that everyone in the company must be aware how his or her actions and activities use cash or generate cash. You must focus on priorities and execute the details, always with a view to increasing the "velocity," i.e. the speed with which you make a product, turn over your inventory, or deliver the product to your customer.

Charan suggests beginning by making sure you understand the challenges your company faces by asking the following questions:

	What were your company's sales during the last year?
	Are sales growing, declining, or flat? What do you think about this growth picture
	What is your company's profit margin? Is it growing, declining, or flat?
	How does your margin compare with competitors? How does it compare with those of other industries?
	Do you know your company's inventory velocity? Its asset velocity?
	What is your company's return on assets? If you know the margin and the asset velocity, do the math: R = M x V.
	Is your company's cash generation increasing or decreasing? Why is it going one way or the other?
	Is your company gaining or losing against the competition?

Honest answers to these questions, coupled with business acumen, leads to clear priorities and specific actions to make money in the real world, in which the external environment shifts constantly. "The best CEOs use their business acumen to reduce complexity, whether internal or external to the company, to the basics of money making." This in turn suggests the three or four business priorities that will be pursued to retain customers and make money.

In the end, "doing the rights things day in and day out builds value." And the only way to get things done is by harnessing the employees' efforts, expanding their personal capabilities, and synchronizing their efforts. Echoing what I wrote in "Nurturing Leaders," Charan stresses the need to have the right people in the right positions and, if there is a mismatch, to remove the person promptly into another area where his or her capabilities better match the job requirements. Failure to do so compromises the entire organization, not just an isolated piece of it. CEOs must master both the business side and the people side to deliver results!

Though written from the vantage point of the CEO, the lessons are applicable throughout an organization. What the CEO Wants You to Know will cause you to see your business in a new light light - it did for mine - and prompt you to adjust accordingly - it did for me.

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