Creativity is allowing
yourself to make mistakes. Art is knowing which ones to keep.
Scott Adams
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The greatest psychological challenge in setting and acting on
priorities
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has
to do with resource allocation. Whether in a group meeting or
through conventional budgeting and capital approval processes,
you have to demonstrate judgment and courage in making resource
allocation decisions that reflect your business priorities and
in following through to ensure that the things that should be
happening in fact are. You have to do the analytic work to
separate out the facts and assess the opportunities and risks,
but you also need to call upon your inner strength and judgment
as John did as CEO of his company.
"You know I'm always behind you, John, but I think you're making
a big mistake on this one," Art, one of the division presidents,
told John during the usual bottom-up, top-down budgeting
process. "My division contributes 65 percent of the company's
profits and our brands need advertising support. If you think
we're fighting for market share now, just watch what happens six
months down the road when consumers forget who we are and we
can't get on the shelves."
John listened intently to all that Art had to say. After all,
Art was experienced, respected, and the strongest leader they
had. It was true that Art's division brought in the lion's share
of revenues and profits. The problem was that the division was
not bringing in what the company needed most: profitable growth.
All of the divisions had been hurt by soft markets and currency
fluctuations, but Art's business was faced with especially
intense competition that was pushing prices down, and it looked
as if revenue and earnings would decline for the foreseeable
future.
Cara's division, on the other hand, had good margins and was
growing. John had combed through Cara's business plan and
believed she had positioned the division well to grow faster
than the market, but she would need ample resources to keep
growing at the current rate.
Then there was Peter. He had already been to see John twice to
try to impress on him the importance of continuing the
development of the SAP initiative. The company had already spent
some $50 million on it and Peter needed another $100 million
spread over the next three years to bring it to fruition.
John knew that the decisions he made would seriously affect the
future of the company and the lives of people who had put their
hearts and souls into the business. But with earnings down and
the price of the company's stock depressed and only limited
capital available for investment, he knew that he was about to
make some of those people very unhappy, so unhappy that they
might even leave the company. Relying on the goals and
priorities he had thoughtfully established to guide his
decisions about where resources had to be deployed, how they
might be generated, and where they had to be extracted, he
prepared himself to withstand the fallout from those decisions.
Building a presence in growth markets was a top priority for the
business so he increased Cara's budget. He made the business
judgment that Art's division was on a downward slide that didn't
look as if it would be reversed any time soon, and cut Art's
budget. To free up more cash to pursue the opportunities in
Cara's business, John pulled the plug on the SAP project, even
though he knew it meant the loss of jobs for people who had been
dedicated to it and a write-off of $50 million.
John's decisions were realistic, well reasoned, and anything but
personal, but Art was deeply offended by what seemed to him a
loss of power, and he began to consider his next career move. As
hard as it was, John stood by his judgment to withdraw resources
from places they had always gone. Six months later, the sales
numbers for Cara's division came in weaker than expected, and
John dug in to see what had caused the weakness. He realized
that the numbers were low because of currency swings, that the
business was on the right track, and that the growth prospects
were as bright as ever. Even when the numbers went off track,
his judgment told him that the priorities and resource
allocations he had made were still correct, and he stuck with
them.
Copyright © 2007 by Ram Charan from
the book Know-How Published
by Crown Business; January 2007; 978-0-307-34151-8
Ram Charan is the coauthor of the bestseller Execution
and the author
of What the CEO Wants You to Know and many other books.
What people throughout the business world acclaim are Dr.
Charan's practicality and the value he provides in helping them
solve business problems. There are no high-falutin' theories
that have people scratching their heads and saying, "Wow, that's
really interesting, but what do I do Monday morning"?
For Ram, the Monday-morning application of his
ideas is the entire ball game and the reason why his teaching is
valued at companies like General Electric, DuPont, Verizon, The
Home Depot, KLM, Thomson Corporation, and many others. For more
information about Ram Charan and his work, visit
www.ram-charan.com.