CONFRONTING REALITY
Doing what matters to get things right
By Larry Bossidy and Ram Charan
Crown Business Publishing $27.50 / £20

Larry Bossidy is a grown-up. He held a number of senior posts at GE, before moving on to become chairman and chief executive of AlliedSignal in 1991. After its merger with Honeywell in 1999, he became chairman of the combined group. He first attempted to retire in 2000 but came back a year later to help find a new CEO and steady the company after its long on-off dalliance with GE - a deal eventually scuppered by European Union competition laws.

In a joint effort with the equally grown-up academic and consultant Ram Charan, Bossidy had his first business book success two years ago with Execution: the discipline of getting things done. Faulty execution, the authors argued, explained the gap between aspirations and results. The stark message of the book was reflected in its bold red and black cover, with "execution" displayed in prominent capitals. At first sight it was not clear if the title belonged in the management section of the bookshop, or the horror department.

But in their writing Bossidy and Charan deal unflinchingly with reality, not fiction. Their follow-up book is inspired by the belief that too many businesses languish in unreality, deluded by wishful thinking, putting off painful measures until it is too late. This new book issues a sustained and powerful challenge to business leaders: get real, or else.

Because he is a grown-up, Bossidy surely would have been sceptical of any consultant wandering into his office in the past declaring: "It's time to radically change the way you think about your business." But this, in fact, is the first sentence of the book. The authors justify this with a brisk summary of the changed market conditions of the early 21st century, which call, they say, for fundamentally new approaches.

First, the internet and new technology have created a global real-time network in information on prices and products. Second, a global credit explosion has created over-investment, at the same time that many industries wrestle with overcapacity. The combination of these two trends produces a third- a global buyer's market, which represents "an unprecedented shift of power from the owners and managers of capital to consumers and intermediaries, including especially giant retailers such as Wal-Mart".

In these circumstances bosses have to ask themselves questions about where their business is heading. Is the "how" of making money in my industry changing? Who is winning in my sector, who is not, and why? How specifically are the winners making money? If I am winning at the moment, what do I need to do to stay on top? If I am not, what changes do I need to make?

This hardly sounds revolutionary, but the book is persuasive when it argues that very few business leaders come up with good answers to these questions. Their challenge to "confront reality" may sound simple. That does not mean it is easy.

The authors identify "six habits of highly unrealistic leaders", which may sound familiar. Unrealistic leaders receive only filtered information. They have selective hearing. They create a climate of fear. They indulge in wishful thinking. They over-invest emotionally in misguided courses of action. And they have unrealistic expectations of the capital markets.

The authors suggest that a "back to basics" approach may be necessary. Your business model must be looked at, and recast, to ensure survival. Three elements come together to form a genuine business model: your business environment, your financial targets and your internal activities (strategy, operations, people, processes and structure).

"The business model is dynamic, not static," the authors say. "You'll almost certainly need several iterations - perhaps many - to get it right initially. After that you will need to test it regularly, keeping it up to date as you perceive external changes on the horizon and changes in your internal capabilities."

The trick is to keep everything anchored in reality, they add, and to be ready to change. Or as Joe Tucci, CEO of technology company EMC is quoted here as saying: "Companies that are afraid to disrupt themselves constantly end up being disrupted."

Instead of thinking only in terms of a supply chain, the authors say, what about the demand chain (or "customer chain")? Do you really understand your customers and the way demand is changing? Winning businesses do not hide from this reality either. Examples of ultra-realistic companies cited in the book include International Business Machines, Cisco, Home Depot and Thomson. They do not mindlessly pursue short-term "shareholder value". They seek instead to build a robust position in their markets.

Of course, making big, painful changes is not easy, as the authors concede. If headcount is too high, if you are manufacturing in the wrong high-cost location, if a whole product range is facing obsolescence, unpleasant action will be necessary. But it really is necessary, Bossidy and Charan emphasise. Change has to be introduced by leaders who understand how difficult (but how important) that change is.

"Humankind cannot bear very much reality," T. S . Eliot famously said. The duty of business leaders, this book reveals, is to confront reality at every turn - however daunting it might be - and relate that reality to the rest of the organisation. Businesses need to get real, before competitors inflict an even more unpleasant reality on them.

Copyright The Financial Times Limited 2018. All rights reserved.

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