Rethinking Competitive Advantage: New Rules for the Digital Age with Ram Charan | Thought Leader

Rethinking Competitive Advantage: New Rules for the Digital Age with Ram Charan | Thought Leader

In this episode of Partnering Leadership, Mahan Tavakoli speaks with Ram Charan, a world-renowned business consultant, former professor, and author of over 30 best-selling leadership books, including his most recent book, Rethinking Competitive Advantage. Ram Charan talks about digital transformation and how organizations can adapt to achieve a competitive advantage.


Some highlights:

-The difference between leaders and business people

-Ram Charan on the importance of understanding consumer behavior 

-Ram Charan on the impact of technology on organizations

-How to achieve a competitive advantage

-Importance of leadership and board accountability

-Ram Charan on how successful leaders think


Also mentioned in this episode:

Andy Grove, former CEO of Intel Corporation

Jack Welch, former CEO of General Electric 

AG Lafley, former CEO of Procter and Gamble

Steve Jobs, co-founder of Apple

Tim Cook, CEO of Apple

Douglas McMillon, CEO of Walmart

Mary Barra, CEO of General Motors

John S. Reed, former CEO of Citicorp

Rethinking Competitive Advantage: New Rules for the Digital Age

Book by Ram Charan

The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation

Book by Alan G. Lafley and Ram Charan


Connect with Ram Charan:

Ram Charan Official Website

Ram Charan on LinkedIn

Ram Charan on Twitter


Connect with Mahan Tavakoli:

MahanTavakoli.com


More information and resources available at the Partnering Leadership Podcast website: 

PartneringLeadership.com



Transcript

Mahan Tavakoli:

Welcome to Partnering Leadership. I'm really excited this week to be welcoming Ram Charan. Ram is a world renowned business consultant, author of over 30 leadership books. And he has consulted with some of the top global firms, including Toyota and Bank of America this over the past 40 years since he was also a professor at Harvard business school and Northwestern university.

Now, I use Ram's insights in many of my conversations with business leaders and often find myself quoting him, whether it was back when I was leading strategy for Dale Carnegie training internationally. Or now when having conversations with clients. So I really enjoyed the conversation with Ram. I am sure you will too.

And I absolutely love hearing from you. Keep your comments coming. mahan@mahantavakoli.com. There's also a microphone icon on partneringleadership.com. Love getting those voice messages. Don't forget to follow the podcast. That way you will ensure that you will be first to be notified of new releases on Tuesdays with magnificent changemakers from the greater Washington DC region and on Thursdays with global thought leaders like Ram.

Now here's my conversation with Professor Ram Charan.

 

Professor Ram Charan. Welcome to Partnering Leadership. I am absolutely honored and thrilled to have you in this conversation with me.

Ram Charan: 

Thank you. I'm very honored. I look forward to it. You absolutely inspire people. Give them the best advice you can give. That's a huge contribution to the community.

Mahan Tavakoli: 

Thank you, Ram. And for 20 plus years, you have inspired me. And for a period of time, I was on a senior team and leading strategy globally for Dale Carnegie training. And I don't think I quoted anyone as often as I quoted Ram Charan in our senior leadership team meetings and our strategic planning meetings.

So I feel like I not only know a lot about your work, but have benefited and the organizations and clients I've worked with have also benefited. You've written over 30 books and started advising back in 1964. So I can't wait to get to your most recent book, but I also know your upbringing had a significant impact on you growing up in Otago tradition, India. How did that upbringing and that initial shoe store, Ram, have an impact on your business thinking?

Ram Charan: 

Mahan, the largest population of business people in the world is the street lender. This single person business, it uses exactly the same terminology whether you are in Russian, Chinese, American, Indian, and they make the same decisions at a very micro scale. 

The second largest population of businesspeople is the corner store. Get on a store, shoe store, or clothing store. I was in the shoe store. At the age of 10, I began to work at the shop. We measured daily sales.  We measured gross margin daily. We priced daily. We cut price when shoes are on sale. We went to buy shoes every week because we didn't have enough cash to buy for the whole month. That is exactly the same thing. 

What is different in Amazon is the scale, it’s the scope, it’s the use of technology. What we did in our shop, maybe we had a hundred customers. Now, Amazon has more than a hundred million customers. You need technology, you need sophistication, but it does the same thing. What's the sales? What's the gross margin? What are the inventories? What is cash at the end of the day? Same exact terminology. So I learned the fundamentals. 

And then over time, I grew my scale that I can cut through just about any business. All businesses have to succumb to it. So many people are leaders, but they're not business people. There are many business people who are not leaders. 

Mahan Tavakoli: 

So Ram, how do you define being a business person, as opposed to being a leader? And those are two elements that you think are essential in leading today's organizations.

Ram Charan: 

The business side first, Mahan. The business side is know your customer. We did. I knew their name and the size of their feet. And know how to make money. But continue to make money. 

The leader of the military, I had a situation of a very big railroad when they asked me to assess a very, very, very high level military person turned CEO, Strategic air command. Wonderful, great leader. He knew the military side of it. He was not a business acumen. So if you look at the history of generals in America, who became CEOs, the ratio of those becoming CEOs successfully is not high. 

Now, many of the people got out of the defense services early at the age of 30-32. They went to Wharton, Harvard, Stanford. Very disciplined, very good. If you look into their careers in their early days, they worked on a shoe store. They worked on a discount store, they are head of business acumen and they're succeeding. 

One of the CEOs of Pepsi came from there. But the population is very small. So just like most businessmen will not make a good leader of a nation. But any CEO of any company must have business savvy. It is not going to be implanted when you are the CEO. It may be cultivated when you were 10 years of age, 15 years of age, 20 years of age. But by the time you become president it's too late. So they will end up having some books, secretary of treasury, but they still have to work at it.

Mahan Tavakoli: 

They do. And in your most recent book, Ram, Rethinking Competitive Advantage, you also keep emphasizing that no competitive advantages, ironclad. It must be earned on a daily basis. It reminds me of Andy Grove. 

It also said only the paranoid survive or Jeff Bezos's day one. You also worked pretty closely with Jack Welch and his approach to it.

So what is it about organizations and leaders that are able to maintain their competitive advantage by earning it on a daily basis?

Ram Charan: 

Mahan, this is the real excellent question of the day.

So I have the honor of working with Andy Grove. The three geniuses. I was commissioned on a national basis to coach those three, 1978. And Andy was totally correct. And so was Welch. The key was that we academics say sustainable competitive advantage. That word came from the economics literature. Professor Richard from Harvard university did this study. Fantastic, fantastic economic person. Michael Porter picked it up as a sustainable. Sustainable implies you've got an advantage, put it on autopilot. No more.

Technology change, competition change, barriers are out. And so you have to earn every day. People who earn everyday are the sustainable competitive advantage. 

So, in one of my co-author book is going to come in fall called TSR: talent, strategy and risk. So Jeff Bezos taught me that if you have the right talent, the right strategy, and the right risk at the right time, your numbers will follow. Talent. Right talent, relevant talent,  earning every day, the preference of the customer is a sustainable competitive advantage.  And that means innovation. That means productivity. That means figuring it out. What the consumer will want? Because today the internet has enabled people to take charge of what the consumer will want, consumers driving the behavior of the companies. So sustainable competitive advantage. 

And you will see in my book, we don't have the word sustainable. It is. You have to earn every day. You gotta be paranoid because upbringing a new startup can do that.

Here for roughly nine years, Amazon kept AWS secret. It came out. Guess who's taking the market share? And that is Microsoft. They figured that out. Now they're expanding the market also. So it's okay. Both can really win and not a zero sum game, but the fact is the two are different and the algorithms are 95% commoditized that available at variable costs.

So high school students can enter something. There's an idea. And then you can go to a spec, get it public, raise money. If it is really a big idea, it will be exposed to Masa-san in Japan. And your luck is changed. Because he will give that. He already had one company and these three guys went to see him with the opposite viewpoint. During the presentation, they recognize that it is killing his own company. Now he had the wisdom to say, “I need both of you. And both of you can do a great job which you have. This is what you have the Stripe.”

 Mahan Tavakoli: 

Ram, since you guide and coach so many of these executives and CEOs, obviously the Steve Jobs of the world, the Jeff Bezos of the world are brilliant and have that observation abilities. How do the best leaders enable more people in their organizations to develop those capabilities? 

Ram Charan: 

Great question. Number one. I want you to know, I work with some of these people. If you imagine their IQ, they are not the most brilliant. They're not. I can tell you firsthand. And I've seen the richest ones, worked with them, seen them. The brilliance is in human behavior.  They are brilliant about people. They are better business savvy people than the greatest scientists who are brilliant. 

There was a study at Harvard 35 years ago, or so they measure the Baker Scholars so the top 5%. But most people came from the middle of the class, they are the people savvy, they are brilliant about people. But the people in the 5% of the class Bakers Scholars were not brilliant about people. So we define that brilliance and hard aspects. A brilliant tennis player is not a brilliant baseball player. So we define that.  

So one day I was working with the chairman of DuPont in the 90s. Tall lean fellow, very courteous southerner. So he had a habit to go to Starbucks and get some coffee, took me with him. And as a chairman, you know people would want to defer to him. He will say, “No, I'm going to stay in line.” Because he and I kept talking. So as we came close to receiving the coffee, he motioned me towards where the food was displayed. He said, “What do you see?” And I couldn't see anything. Then he says, “The head is the brand of Starbucks. They charge higher price. But look at how badly the food is displayed.” That's observation. 

I had the chance to write a book, Game Changer with the former CEO of Procter and Gamble, A.G. Lafley. And he used to go every weekend to the supermarket, visit them. He's the one who found the electric toothbrush and he bought it for $10 million. And if he's going to do it, other people have to go, they have no choice. And say, what do you observe? What's new? What's the behavior? We did that every weekend in Pepsi. 

So the CEOs know they're busy as hell. They have to do too many things, but to know the business, to know the consumer, not just market research reports, you got to know the consumer. 

Mahan Tavakoli: 

So that customer intimacy is really important. You also mentioned, Ram, that we see our organizations from an inside out perspective, but need an outside in view. So how can the best leaders do that? 

A lot of leaders of organizations feel like they have a good understanding of what their customer's needs are. How do you guide them to have an outside in view of their organization? 

 Ram Charan: 

In the early days in Unilever, P&G, Colgate. In these companies, every vice president was required to spend a week and live with the consumer. It's in my book Game Changer. Observe it. Do that. 

Now I have instituted in companies that if you really want to be consumer centric, you must do three things.

Number one. In your executive committee meeting, you must devote 10 minutes. What's new about the consumer? Ask them to talk normal only because you're gonna require that every executive committee meeting, every committee meeting anywhere. How did I come up with the idea? 1976, DuPont began to focus on safety. They required in every company they went in that every meeting starts with safety. Why can't we start every meeting with consumer? Any allocation of capital you do, anywhere. Is this the consumer data? 

I remember I was writing a book with A.G. Lafley and he was mentioning somebody who came to show him something and say, “AG, what do you think?” I never forget it. AG said, “I'm not the customer. Go to the customer and find out.” Create the culture of knowledge of the consumer.

Mahan Tavakoli: 

So that is definitely one of the key elements that you keep mentioning. There has to be that deep understanding. Some of it based on intuition, some of it based on data, artificial intelligence, machine learning.

You also mentioned, Ram, that companies don't die. Leaders let companies die. And whether Barnes and Noble or Nokia, you had a couple of really unique experiences and understanding of how hubris can bring organizations down.

Ram Charan: 

Oh, no doubt. You see they both fail in those situations. You see Ford came to a snot in 2007. How could that be? It was a healthy balance sheet equation, 1996. So in a period of 11 years, what happened? You can blame everybody. 

So you don't need a doctoral thesis. If you have three consecutive wrong CEOs of a company survives, it's because the brand refuses to die. So at one point in 96, former chairman of DuPont became a director level. Now I've worked with him for years. So he and I talked all the time and he said, “Ram, Apple brand refuses to die.” Companies should not die. 

So in my book Boards that lead, first chapter, how he brought single-handed listing jobs back? With the board's approval, he tried to sell the company. They were no buyers. Eventually brought Steve Jobs back single-handedly. Look what one man did. And then his succession. Look at Tim cook. He brought Tim Cook. He was a low level supply chain guy in a 3% net margin business called Compaq. So leaders and the boards are accountable for success and failure.

Look at the AT&T today, they're divesting to a different one. What was the board doing? Where were they? They should ask. How much question did they ask in approving the deal? Did they spend two, three, four days to understand the deal? Did they understand what talent was required to play the new game by putting this totally new game in the old game?

What will happen to the speed of decision-making? These are great board people. I know some of them. But why did they not spend three days, full time looking at it? Chances are they did not, I don't know that. 

By the way, AT&T made a mistake twice. They should look at which board members are common. One time they bought Hughes system that would have to be divested. So there's not one mistake, there are two consecutive mistakes. They are not the normal errors. They are the errors of not spending due diligence on the board part. They discarded what the CEO wants. 

Mahan Tavakoli: 

For anyone that doubts that organizations can turn around and do well, and my audience is very familiar because I'm a huge Satya Nadella fan of what he's done with Microsoft, but you also mentioned Walmart and Mary Barra leading at GM as great examples of organizations that have truly taken on this need for transformation and rethinking their competitive advantage.

Ram Charan: 

In the case of Walmart, it's a fact, it's not a matter of my judgment. Douglas McMillon comes in and he has the wisdom to buy a company that's been digitized. And the CEO, Laurie had actually worked for Amazon, sold his company to him in Amazon.

So he's able to put the basic AI in the company properly, even though Walmart had the digitization of 2001, but did not do much with it. And as a result, it is not connected to consumer last mile delivery and converting the stores as a competitive advantage as the place to pick up. 

Now they're using the Amazon approach. That is the customer. What is the total living needs of the consumer? Healthcare, advertising. So they begin to move on to that. They've got the digital engine. So it's on the way, the stock prices double. I'm very hopeful. It's going to go far in the future. So that's about the Walmart. 

I was very lucky. I was in a CEO summit where there are Harvard type amphitheater and Mary came in to sit next to me all day. That was a great honor to do. I didn't disturb her. I had a great respect. 

Now, remember. One of the key things in automobile business is product. Know product on automobile companies. And it requires this several years ahead planning and you've got to allocate the right resources and not sprinkle the desert with a teaspoon. You have limited resources. 

She came from product and then she came from human resources. She is a superb business savvy lady. And I want to give you an example of inclusion. It's coming in my book co-authored called TSR talent, strategy and risk for boards. Mary Barra, CEO of GM, keeps the board informed with a two-page memo almost every week and seeks their advice. She is coming in my book.  The activist shareholders went to them. She listens to them. She picked up one good idea. That's leadership. She is gaining, the stock prices moving. I like her plan. She may not be number one in 10 years, but she will be in the top three. I've no doubt. She will not be dead as a CEO in 10 years. Not likely. I'm pretty sure she will have a succession. She believes in it. I don't work for her but I watch her. 

We have leaders in America who can do that. But get the right leaders and don't get away with degrees and with pedigree. She's not a person you go to see as a flamboyant. She's not a flamboyant. You don't hear her all over the networks. We have people in auto wheel industry or all over the network publicizing themselves. Didn’t do a damn thing. You know the names. You don't hear Mary Barra publicizing. She's focused on the job. 

Mahan Tavakoli: 

And as you showed in that example, she's obviously open to feedback, which, Ram, you mentioned in the book, feedback is critical to leadership. One of the challenges that I see with a lot of leaders is that the higher up they move in the organization, partly they become more closed off to feedback, and partly people gauge the feedback they provide to them.

So how do you guide executives to truly be open to and embrace feedback as they look to lead more effectively?

Ram Charan: 

It's a great question, but I want to tell you more damning things. The mode of the people who have come through in most companies are competing among themselves through bureaucracy, through presentations, through building internal coalitions, doing incremental things, finding a way to get their budget approved. They're not going to succeed. It's a game of screen. It's a game of entrepreneurship. It's the game of major change. It's a game of knowing the consumer. It's knowing, getting the competitors who don't come from your industry. 

So in my work of succession, I'm telling the boards and the CEOs to look at the third and fourth layer, create new parts for them to succeed in seven years. They have energy. They think differently. There are millennials coming up there. They understand how to create businesses. 

Now, coming back to the listening part of it. Go and listen to the customer. Get other people to listen to the customer. If you do that, it’ll be easier to listen to others. I had the honor of working for John Reed of City Group, chairman CEO in the 90s, and I conducted a program for him. Month-long program for his high potentials. He told me a rule, he said “Tell the group -” there were some given assignments to present. “If they know I know something and the present don't come.” So I supervise those teams. I said, “He knows that, don't produce that. He'll be courteous to throw you out. I guarantee he'll be courteous.” And you know what the students did. They loved it. 

You know, most of them are CEOs somewhere today. One of them is the head of S and P global. So you, as a leader, set the tone. It is a look. I am looking for diverse viewpoints. I had a CEO, his name is Dick Herington, that became a Thompson writer. And he had this thing in his view. He said, “Listen, I want to hear a diverse viewpoint. Otherwise don't come.” And then you have the license to question the CEO. Now you've got to be respectful. You got to be courteous. It's the Boone phenomenon of the lives of the people about the people who are nobodies. 

You see, I've been 50 years in this business and they become CEOs and I have coached one of them to become CEOs. These people had that curiosity to actively search opposite viewpoint. It is more so at the top level, because Walter Wriston used to tell Jack Welch he said, “Jack, you will be the last one to know.” Think about that. He should be the first one to know, but we cannot change people's basic cognition. It's personality. 

You know what, One of the great things Satya Nedlla did was turn the culture of Microsoft from ‘know it all’ to “learn it all”.  That’s one of the reasons for their success. The stock price is now seven times up eight times more likely. It's the same Microsoft, different leader, different content, different focus. As you know, Bill Gates is no longer on the board.

Mahan Tavakoli: 

And Nadella truly serving, as an example, not just talking about it, serving as an example of that, learn it all. 

You also mentioned you spent a lot of time and wrote a book on Amazon. One of the things you mentioned is they have a weekly report with 62 pages of metrics. And those are really, really important in determining and understanding customers while on the other side.

Wells Fargo is a famous example of an organization that got in trouble because of focusing on the wrong metrics. So what are the metrics that you believe organizations and leaders should focus on as they look to guide their organizations to become more competitive in rethinking competitive advantage?

Ram Charan: 

In the case of Amazon, it's totally digitized. 62 pages is just about everything that got measured. Since it's digital, you design it once. The deviations are found by the algorithms, anomaly trackers. So you tell him what you want and they will give you what they are and then management will focus. So that's very comprehensive. Betty Galloti. The CHRO came from a division, has 600 engineers with her. They're going to have zillion people inside. They're going to be assigned. She’s making them, doing them. 

In the case of Wells Fargo, it’s not the metrics. It's the CEO. When he was very young, and I knew him, his incentive to do all those things, driving larger number of products for our customer. It’s the leadership. It’s the incentive. It’s causing lack of integrity in people. They knew it. These things are not hidden. No metrics would have prevented that. It's not Wells Fargo. It is the CEO and CFO.

Mahan Tavakoli: 

And that leadership makes a big difference. And that organizations need metrics Ram, and to your point, it's the leadership that guided the organization in a wrong direction in measuring and pushing the wrong metrics.

Ram Charan: 

Absolutely. Keep reinventing things. You're saying no integrity. You can't measure with metrics. The chief marketing officer would have known this. If it didn't, he was incompetent. 

Mahan Tavakoli:
Well, Ram Charan, as I mentioned early on in the conversation, I can speak with you for hours and days because you have put out such great content, great thinking. And as I mentioned to you earlier, for me, you have been a wonderful teacher, which is why I call you, even though you were a professor, I keep calling you professor Charan because you have had a great influence on my own thinking as a teacher, as I have read your books, even though you were a professor, you are not professorial.

You are a practitioner and you take concepts and help others put them into practice. Which is why I truly appreciate your business writing and your business insights, Professor Ram Charan.

Ram Charan: 

Thank you. Mahan, I want to mention one thing. The most important issue we face today is inequality. We change this, the GDP will increase. It will give dignity to people from checkcheck. That creates energy in people to do new things. We got to deal with that.  

Mahan Tavakoli: 

Professor Charan. It is absolutely critical. It is something that is close to my own heart and I've dedicated some time and effort to it. I also serve as chairman of the board of Leadership Greater Washington, which is a regional group of business government and nonprofit leaders in the Greater Washington, DC DMV region.

And that is absolutely critical for us because we truly believe to be able to take advantage of the opportunities ahead of us, to be able to do what you talk about and rethink competitive advantage. We have to break through some of these challenges with respect to inequality and provide greater opportunity to different people within our communities for greater growth for everyone.

So I look forward to having more of that conversation with you and learning from your insights on how we as a community can tackle that inequality.

Ram Charan: 

Thank you very much, Mahan.