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Leadership During Economic Turmoil: Q&A With Ram Charan

With top executives heavily criticized for their hand in the economic downturn, those still in leaderships positions are now charged with saving their companies. They even have to come out of this recession much stronger and more resilient. Business advisor Ram Charan details exactly how to do this in his latest book, Leadership in the Era of Economic Uncertainty: The New Rules for Getting the Right Things Done in Difficult Times.

Ram CharanFor the companies that are still doing well, do you think it's mostly a matter of leadership, or are there other factors?

Good leaders are tuned to external change—anticipating, connecting the dots and seeing the outside world. So the question here is that while the landscape change is the same for everybody, it impacts differently. Leaders are those who are able to connect to this change and confront the reality of what it is. If they do that, their companies will come out ahead of others—and that's why the leadership at this point is not only analytics or working with people, but also a performing art.

How can leaders master this art?

The key is very simple: Leaders are teachers also—practice teaching in your staff meetings. It's personality, courage, ambition and drive.

You say that it's important for leaders not to give false assurance—how would you suggest this be executed?

This is the part I call a leader's intellectual honesty. The first part is that whatever's coming in from the media or a common person is bound to be confusing because there is no clear combined viewpoint. A good leader will sort all this confusion and give an intellectual honest viewpoint. There's no sugar coating, extraordinary pessimism nor extraordinary optimism—you have to build credibility in the eyes of your people.

What is the biggest difference between the leaders who will be able to pull through and those who won't?

There are three differences in the leaders in these circumstances. The first and foremost is defining realism, and then taking the actions now and not postponing them. The second thing is orienting people on the new reality with superb communications—internally and externally. And the third, coping with the toughness of the existing environment, but positioning the business to change the game after the storm.

Are some leaders more prepared for crises?

Those who have something in place that are properly tuned to the external change now—they have the advantage of availability of time. If you have not done so though, it's never too late. Urgency, speed and flexibility will make you win. Translate those three concepts in your company in an operational sense.

Leadership in the Era of Economic UncertaintyHow should they prepare to better cope with crises?

I think hindsight is great. Most people weren't prepared for [this economic downturn]. The leadership should see the tsunami as it is, not second guess it, but have the poise and the urgency to deal with it. For example, if you were in the auto industry today in America, let's say you decided to go through and produce 18 million cars in America—you will make huge mistakes from allocating your resources like that. You will open the plants, and you could run out of cash in no time. So the realism is: What is your view of the total demand? What's your view of the demand in the segments you do well and don't do well in? What's your view of the number of plants you're going to open? Here, you should prefer conservatism more than skating on the edge of optimism. Those are the mistakes you make—because cash is king. The highest priority for most companies today is cash.

Would downsizing solve the cash problem?

The second priority after cash is to rethink your business model and cut your cloth—tailor your cloth through the realities of demand. The first thing you need to know is where is your cash being consumed? Where is your cash being generated? It's training people about that—it's not accounting, it's business—to know where the cash is every hour. The corner grocery store person knows without computers where the cash is.

If you could give one piece of advice for the leaders of corporate America during these times, what would it be?

No leader succeeds without taking his or her people with him or her. Inspire them, be honest with them, engage them. Whatever you do now, don't forget you build your future as well.

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