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Confronting Reality will change the way you think about and run your business. It is the first book that shows how to connect the big picture of the new era of business with the nitty-gritty of what to do about it. Through a completely new way to understand and use the business model as the primary tool for confronting reality — a breakthrough that will become the management innovation of this decade — you’ll know sooner rather than later whether your fundamental business premise is under assault, where your best...
Confronting Reality will change the way you think about and run your business. It is the first book that shows how to connect the big picture of the new era of business with the nitty-gritty of what to do about it. Through a completely new way to understand and use the business model as the primary tool for confronting reality — a breakthrough that will become the management innovation of this decade — you’ll know sooner rather than later whether your fundamental business premise is under assault, where your best opportunities lie, what you should change and what you should leave alone, and how to realistically plan the future of your business.
The fundamentals of how a business makes money are being rapidly and permanently altered by sweeping structural changes. With their extraordinary depth and breadth of experience, Larry Bossidy and Ram Charan are the ideal guides for everyone — entrepreneur, mid-level manager, or CEO — about what is to be done so you can get things right in this challenging, radically changed world. They start by showing you how to understand the most fundamental element of any business: whether you can realistically make the money you hope to in the game you’re playing.
Bossidy and Charan show how to use the business model to develop a robust, reality-based process for thinking about the specifics of your business in a holistic way. They show how to tie together the financial targets you must meet, the external realities you face, and internal activities such as strategy development, operating tactics, and selection and development of people.
Through the lens of the business model, as well as the skillful use of initiatives and development of people with the right leadership characteristics, you’ll see how Robert Nardelli at Home Depot, Jim McNerney at 3M, Dick Harrington at the Thomson Corporation, Michael Wisbrun at KLM, Joseph Tucci at EMC, and John Chambers at Cisco confronted reality. Whether they faced crisis or opportunity, all made the right kinds of changes through a combination of business savvy (the art of understanding the fundamentals driving a business) and business model thinking.
Bossidy and Charan begin Confronting Reality by stating, It's time to radically change the way you think about your business. They write that the way to start to plan a business is by asking what the nature of the game you are in is, where it is going and how money can be made in the endeavor. These questions, they explain, are the fundamentals of business thinking. Urging companies to adopt a realistic approach to their business plan, the authors write that the difference between a business' success and failure lies in the very nature of how people conceive the purpose and direction of their businesses. According to the authors, the problem is that companies do not look long enough at their money-making process and fail to link the environment in which they operate with the financial targets they need to meet and the internal activities and capabilities that they need in that environment to meet their financial targets.
In Confronting Reality, the authors present a framework in which firms can organize and link these fundamental components. At the heart of this framework is a dedicated focus on understanding the realities of the world in which companies do business and how they match their goals and actions with those realities. By using the business model as the basis of their methodology, they offer companies a familiar reality-based process for analyzing and balancing goals, external realities, and internal realities such as strategy, human resources, operating activities and organizational structure.
By linking these realities together, the authors explain that companies will learn sooner rather than later when their businesses are under assault, where opportunities can be found and what internal activities need to be changed. The authors describe how businesses can properly build a complete and effective business model that uses iteration to harmonize the external environment with financial goals and internal capabilities.
The authors write that the process of iteration makes companies see the world the way it really is. They explain that it is tied directly to the concept of business savvy, the instinct in successful business leaders who possess a shrewd, instinctual feel about how to make money. They write that business savvy is what separates those who make successful business decisions consistently over time from those who only have an occasional lucky stroke of genius.
Billy Beane's A's
To put faces and names on their concepts and ideas, the authors present a number of people who have devised their strategies to meet their financial targets, including Sam Walton, Michael Dell, Jack Welch and even the general manager of the Oakland A's Billy Beane.
In major league baseball, where big city teams usually outplay teams from smaller cities because of their deep pockets and the resulting expensive talent, Billy Beane defied conventional wisdom with his business savvy by creating one of the winningest records of the past several years. By questioning the usual criteria of batting averages, home runs and runs batted in for judging players, Beane looked at their ability to get on base and take a deep ball-and-strike count instead. With his new fact-based criteria, Beane built a team of affordable talent that recognized the structural changes in his industry that put his team at a disadvantage and designed a new business model that created more value for his franchise.
In Confronting Reality, the authors explore other leaders who, like Beane, were able to recognize the world as it truly is and had the courage to change what needed to be changed to succeed. As business conditions change and companies look for better ways to grow and innovate, the authors provide timely examples of what business savvy looks like today as well as ways firms can initiate actions that offer enormous rewards. ~
Why We Like This Book
Confronting Reality does more than provide a wake-up call to companies that are feeling left behind by fundamental industry changes. It also presents a realistic picture of the ideas and questions that must be confronted to get back on track as well as a guiding business model that can put all the pieces of the organizational puzzle where they fit best together. Copyright © 2005 Soundview Executive Book Summaries
When Reality Bites: The Stories of John P. and Lou G.
The most widespread unrealistic behavior when the game changes drastically is to violate the First Law of Holes (when you're in one, stop digging). People redouble their efforts to do what they know best. They often achieve heroic results-which are, alas, almost as often pointless, because they fail to confront the new realities.
For example, many managers facing competition from abroad are still fighting yesterday's war. That's the one the Japanese started with their efficient manufacturing processes. Today even the Japanese can't win it. Doubling your productivity is a wonderful accomplishment, but it does not confront reality because it won't save you when your competitors have global supply chains with costs that are a small fraction of what you can hope to achieve in your home country. Services are now in the equation too. Customer support, back-office operations, product development, and even some segments of R&D can be as outsourceable as factories.
Consider John P., a business unit leader we know. In mid-2003, John and his top managers were preparing the 2004 strategic plan for their $500 million division, which made protective coatings for a highly specialized industrial market. John had run the division superbly for more than five years, and was considered a candidate for senior leadership of the parent company. He knew operations, and had good relationships with his customers.
Recently those customers had been telling him that their sales were down because of competition from abroad. They allowed that John's products were the best on the market, but they were under tremendous pressure to reduce their costs, and they expected all their suppliers to do the same. John took their message seriously, and told his people what he'd heard.
John's team agreed they could do a number of things to cut costs. They worked out a plan to close one of their four U.S. plants, consolidate three European plants into two, tighten other expenses wherever they could, and increase R&D spending to further distance their product from the competition's. Based on past experience and on what everyone present at the meeting knew, the plan looked realistic.
Then the new CFO spoke up. He'd joined the company only recently and was seeing the issue from a broader perspective. "From my point of view, you appear to be heading down the wrong track," he said. "Your recommendations would be good if the problem was our traditional domestic competition. They might satisfy the customers in the short term. But I know for a fact that two of those customers have already started moving to China. The others will undoubtedly be doing the same soon. Don't they expect us to reduce our costs just as significantly? Closing a U.S. plant, consolidating in Europe, and cutting costs by a few percentage points won't do that."
John looked around the room and noted that the other members of his team seemed just as uncomfortable as he felt. "I'm not sure what to do," the CFO continued, "but I urge you to consider the pros and cons of moving the whole operation to China or licensing our technology to a China-based supplier."
John knew that lots of businesses were outsourcing to China these days. Still, the idea stunned him. It just didn't make sense for this company.
"Mike," he said to the CFO. "This is not something we need to do-or even necessarily can do. You surely know that a lot of our differentiation comes from the application process. That's all about...