“Ram Charan carefully dissects every nuance of Leadership Obsolescence—why & how the tenure of CEOs is shrinking, fresh set of skills required for a Newer World.”
When ‘the most influential consultant alive’ tosses up a caveat, businesses strive to do more than having their proverbial ear to the ground. Renowned author, advisor and management guru Ram Charan has aptly earned that epithet from Fortune as he now demonstrates what it takes to remain at the top of the corporate ladder. In a world that’s transforming at the speed of light, Charan makes light of the rigidity and idee fixes that determine the charge of the old brigade. Over a sit-down session.
The average tenure of Fortune 500 CEOs is down to 4.6 years and some Chief Executives last fewer than three years. Why are CEOs having such a tough time holding on to their jobs ?
CEOs should watch that number carefully. The news of CEOs losing their jobs no longer draws the attention it did, and the worrying part is that the casualties will only continue to mount. The explanations boards give when they make a change vary in their specifics, but the underlying problem is much the same: the leader is ill-equipped to negotiate a bend in the road. The change in leadership often comes too late, when the CEO has missed the curve, and at least some damage is done. Kodak was a very strong business as late as the 1990s but wrong bets and a late reaction to the shift from film to digital photography under four different CEOs ultimately killed the business.
These kind of things are happening faster and more often. Stronger boards make a change promptly when they see that the skills and talent of the incumbent CEO don’t match the emerging challenges, but the culprit is usually the same—major change in the external environment.
Is this volatility in the external environment a temporary phenomenon ?
The idea of weathering the storm does not apply. Uncertainty and volatility are here to stay because the sources of such major shifts have increased exponentially. The combination of digitization, wireless, sensors, advanced analytics and software, combined with technologies, like 3D printing, are altering consumer behaviour, value chains and business models. Margins are shrinking and cross-industry disruptions are now common. These are unstoppable trends that will affect virtually every business. Some businesses are going through it now, some will follow. This is where obsolescence comes in. Those leaders who cannot see this and deal with it, will pay a penalty..
What does it take to sustain a company— and a career—under these conditions? Keeping a company relevant takes a leader who sees change coming and has the will and the ability to re-position the business. Superb cognitive skills and all the usual personality traits associated with leadership— things like the ability to communicate and motivate people and high ethical standards—continue to be important but they are the “givens.” Other criteria are becoming increasingly important.
What new skills are required ?
First and foremost, is the ability to scan the environment, spot the unstoppable forces and carve a path forward. Second, the ability to deal with governments and build bridges of information to know what regulatory or policy changes might be coming. In India, legislation and court decisions can seem to come out of the blue, but there are ways to anticipate what might be coming by staying in touch with those close to the government or watch.
A third skill is the ability to deal with technological change, both digitization and real technologies, simply because technology is driving the game. Digitization is making other kinds of technology faster and more economical— lowering the cost of genome mapping, for example. It is not good enough to say, ‘I am a great finance guy, I go through the numbers and ask the right questions’, or ‘I really know the consumer’. Leaders have to be totally immersed to understand the impact and implication.
What about Execution, a subject you’re an expert on ??
That’s a fourth skill, and in particular, resource allocation, because that is the first line of managerial action when you are trying to steer the company differently. Thinking is one thing, getting it done is another. Execution requires shifting people and finances. You have to mobilize the company by driving the social system, which can be 1,000 people, 2,000 people or 10,000 people. There is skill in knowing where.
How else does a leader’s psychology factor in ?
In uncertain times, leaders cannot be on the defensive. Even if the leader is caught on the defensive because of circumstances, personally, he or she has to play offensive. Put some chips on the table, make a shift inside. Uncertainty like this also has a message and the leaders have to use that message to position the company and change the purpose of the company. There are so many pressures that crop up on a daily basis.When leaders spend most of their time in pressure cooker situations, psychological tiredness is a risk, but it cannot be allowed. Physical maybe, psychological not. The moment you are psychologically tired, your decisions start going wrong. Leaders can do exercises for their physical fitness; they also have to deal with the mental weariness that comes from overload.
Do leaders need to delegate more ?
They should decide in the next 12 months which decisions only they should make. Beyond that, they should rely on other people’s judgment and commitment. CEOs need to trust their top team. If you can’t fully trust them, replace them. You need a strong, totally aligned team, people with a good head on their shoulders. They should be people who expand your capacity, not drain it. What CEOs cannot delegate is the selection of key people who work for them, and working with the board or the government.
What kind of leaders remain vulnerable ?
We have CEOs or CEO successors who are in the legacy mode with regard to the skills I mentioned. They don’t know how to sort through these new change drivers or how to allocate resources and they are not attempting to learn about technology. These leaders are living on the brink of obsolescence.
Does age matter ?
As boards deal with issues around leadership obsolescence, we can expect to see more younger people in corner offices, 40 + year-olds becoming CEOs of billiondollar companies. These younger people have come of age in a digital world and one of fast change, which can shape their mental makeup. Kumar Mangalam Birla became CEO at 28 and has done an astounding job.
Is inner peace possible under conditions of relentless change ?
Peace of mind is a function of the inner confidence that comes from sifting, sorting and selecting what matters. The leader needs some kind of framework for focusing on what’s important. The second thing is that good leaders do not feel lonely. They have a number of people whose judgments they trust and use them as a sounding board. I’ve seen some leaders create small teams to share perceptions of the external environment. Others invite outsiders to share their views about what is happening on the outside and what might kill the company. Leaders under stress sometimes try to isolate themselves but the inner anxiety only builds, and the situation worsens. Leaders who want to go it alone will likely end up going out of the door.
How should a CEO react when he sees the business landscape changing ?
The CEO should not say we have missed the boat. Even if you have, you can scan the horizon and drive change. I believe we have to search for certainty. Jeff Immelt figured out the Internet of Things in 2010 and saw IBM coming into it. He put $400 million into the project, got the thing going and he was not the first. One or two players could take the lead in the industry but that doesn’t mean the whole industry took the lead. If you are vigilant, looking outside-in, getting younger, fresh people to come in and challenge you every quarter; it is not too late because one player won’t have 100% market share and the guy could stumble, but the issue is can you be a good follower ?..